How can an NRI invest in India? Mutual Funds vs NRI Term Deposits
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How can an NRI invest in India? Mutual Funds vs NRI Term Deposits

Updated on April 12, 2022 09:00 am
hand writing about mutual funds vs nri term deposits

NRI's who are interested in taking advantage of the growth of the Indian economy have the option if investing in their NRE or FCNR accounts via term deposits or into mutual funs (MF).

What is a Mutual Fund? It is a corpus of money pooled into one by a large number of investors who have a common objective. MF's have fund managers who invest the corpus of funds into different equity or debt instruments based on the objective of the fund. Equities are primarily the shares traded on various stock exchanges or commodity exchanges. Debt instruments are generally debentures or bonds or similar instruments which are in effect extending the debt burden of the invested company. In India the MF's are governed by the rules and regulations as set by the Securities and Exchange Board of India (SEBI). The basic types of Mutual Funds are Equity Funds, Balances Funds, Debt Funds and Equity Linked Saving Scheme (ELSS).

Equity Funds are those, where the investment in equity is around 70-90% of the fund corpus, Debt Funds are those where the majority of the corpus is invested in debt instruments, Balanced Funds those which balance the investment in equity and debt and ELSS is mainly for tax saving purposes and has a lock in period of 3 to 5 years.

The average return on MF's for a holding of minimum 3-5 years is approx. 15-18% in normal market conditions. At times when the market conditions in India are low the returns expected can be around 8-10% and at times of boom there are no bounds to the returns the MF's can fetch. There have been times in the past that the MF's has fetched a return between 35-50%.

One can invest into the MF's as a one-time investment or on a monthly or periodic basis, also known as a Systematic Investment Plan (SIP). Similarly, one can redeem the investment all at once or in small pieces called Systematic Withdrawal Plan (SWP). One can also repatriate the investment in MFs including the capital invested and the capital appreciation as long as they are still classified as an NRI at the time of redemption. Redemptions are paid in Indian Rupees only and the investor is responsible for any loss or gain that may arise on the account of any foreign exchange fluctuation, should they wish to convert the Indian rupees into any other currency. The transfer from India to abroad is done by the bank and not by the Mutual Fund company.

Due regulations under FEMA and SEBI, not all mutual fund houses allow investments from NRI's, however, there are some that still do. These are:

  • Birla Sun Life Mutual Fund
  • SBI Mutual Fund
  • UTI Mutual Fund
  • ICICI Prudential Mutual Fund
  • DHFL Pramerica Mutual Fund
  • L & T Mutual Fund
  • PPFAS Mutual Fund
  • Sundaram Mutual Fund

When it comes to investing in mutual funds, the tax liability of the non-resident is the same as that of a resident Indian. If an equity fund is sold beyond one year of holding, then it becomes tax-free. For the purpose of taxation balanced funds are treated the same as equity funds. debt funds have the advantage of indexation and Long Term Capital Gains at the time of sale, if done beyond the specified holding period of 3 years.

NRI's also have the option of investing in NRE Account Term Deposits, FCNR Account Term Deposits and NRO Account Term Deposits. The NRE & NRO Accounts can be a general account as opposed to a term deposit account however, CNR Accounts are mandatorily Term Deposit accounts. The rate of returns on these instruments depend on the bank in which the specific account is opened, but is generally much lower than that of MF's. One can repatriate the funds under the term deposits made under NRE and FCNR accounts. NRI's can also avail of loans in their favor or a 3rd party, outside of India from the subsidiaries or correspondents of the banks where they have opened these term deposits in India however; loans are not permitted on the NRO Fixed Deposits. These accounts can be operated by a registered power of attorney on behalf of the non resident.

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Best Way For An NRI to Repatriate Money From India to UK

 When it comes to repatriating large sums of money from India, it puts every NRI in a situation where he has to consider different obligations regarding monetary cross-transfer. Taxation, reliability and transfer timelines are a few things that influence these decisions.Personal finances have to be dealt with delicately and ensured that there is no loss during the due process of remittances. There are various options available in the marketplace today, be it via traditional banking or the modern ways of online transfers.CompareRemit offers a platform that allows you to compare different players in the market and pick the best rates that suit your needs.Repatriation from an NRE AccountAs a component of the liberalization scheme of the Reserve Bank of India, remitting funds from India has become relatively easier. Balances in NRE (Non-Resident External) accounts are freely repatriable. No formalities or requisite permissions are required for remittances abroad be it any amount. Funds in accounts are usually funds deposited from abroad or current income like interest or dividends on investments made through foreign funds.Repatriation from an NRO accountBalances in NRO (Non-Resident Ordinary) accounts are subject to certain conditions. The remittance of USD 1 million per financial year from NRO accounts is allowed subject to certain procedural formalities. NRO account balances include income earned locally or certain capital account transactions. Form 15-CA and 15-CB need to be submitted before a remittance can go through.Read more on difference between NRE and NRO account on CompareRemit.The Traditional Option - BanksThe most sought after choice for remittances to the UK are banks. Banks are the most popular means of transferring money to the UK because:There is a high level of trust owing to the various government regulations.Familiarity and the comfort of knowing the neighborhood-friendly banker.There are two ways one could remit funds using banking services:Online - If your bank has given you access to internet banking and allows repatriation through online instructions.In-Person - One could walk into the bank yourself and have the formalities completed there and then and have the satisfaction of seeing it to its destination with a receipt in your hand.However, it is important to note that INR to GBP/GBP to INR exchange rates may not always be competitive. The transfer fees can be high and the charges, not always transparent.Selection of Remittance Service ProviderShould you want to avoid remitting through banks, approaching a marketplace of money changers would be the next best option. A selection of remittance service providers should be made based on the following:- Transfer chargesSpeed of transferExchange ratesCharges on the conversion of currency (INR to GBP)Freeze option on exchange rate while process requirements are completedFlexibility of payment optionsAlternative Options for Remittance from India to UKWise - UK based transfer service supporters - Wise incorporates credit cards/debit cards, SWIFT, international transfers to bank accounts, domestic wire transfers and more. Wise offers competitive exchange rates for pound to rupee or rupee to pound conversions. It assures fast and low-cost online money transfers from India to the UK.ExTravelMoney - One of the easiest services for transferring funds from India to the UK, they also offer the facility of booking orders online.Western Union - In four easy steps available online and your money is sent from India to the UK. They offer competitive rates and faster transfers as well.Thomas Cook - Provides the best foreign exchange rates besides giving the assurance of secure and timely remittances for specific purposes.BookMyForex - With zero commission and zero charges, they claim to send money from India to the UK at guaranteed lowest exchange rates. The time span for the transfers to be effective is 12 to 48 hours.To select the right money transfer service one should keep the cost and time factors in mind. Convenience at a reasonable cost should be the mantra for selecting a suitable remittance service provider.

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How to Send Money To Canada

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Whether it’s for conducting cross-border business, managing personal finances during travel, or analyzing global economic trends, an understanding of international currencies is essential for making sound financial decisions and thriving in an interconnected global economy.If you are a globetrotter seeking new adventures, a savvy investor navigating the global market, or simply an inquisitive mind fascinated by the intricacies of the financial systems, this guide will provide you with a comprehensive overview of international currencies, their characteristics, and the current state of the top international currencies.Central to our exploration of international currencies is the concept of exchange rates. 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They can promote confidence in a country's currency and reduce currency risk for businesses engaged in cross-border transactions.However, maintaining a fixed exchange rate requires significant intervention by the central bank and limits its flexibility to respond to economic changes.Floating Exchange RatesIn a floating exchange rate system, currency values are determined by market forces of supply and demand. The exchange rate fluctuates freely based on factors such as interest rates, inflation, economic performance, political stability, and market sentiment. Governments do not actively intervene to control or fix the exchange rate.For example, the United States has a floating exchange rate system, where the value of the U.S. dollar is determined by market forces of supply and demand. The Federal Reserve influences interest rates and monetary policy but does not actively intervene to fix the exchange rate.Advantages & Disadvantages of Floating Exchange RatesFloating exchange rates provide flexibility for currencies to adjust based on market conditions, allowing them to find their equilibrium levels. This system allows for automatic adjustments to external shocks and economic imbalances. However, floating exchange rates can be volatile, which introduces uncertainty for international trade and investment, as exchange rates can vary significantly over time.Mixed Exchange Rate SystemIt's worth noting that countries can choose to switch between fixed and floating exchange rate systems depending on their economic policies and objectives.Many countries today adopt a mixed exchange rate system, also called managed float system, that combines elements of both fixed and floating systems. In this system, the exchange rate is influenced or guided by government intervention to avoid extreme fluctuations. This approach aims to strike a balance between stability and flexibility.For example, India follows a managed floating exchange rate system. The Reserve Bank of India (RBI) actively manages the Indian rupee (INR) against a basket of currencies, primarily focusing on the U.S. dollar. The RBI intervenes in the foreign exchange market to smoothen excessive volatility and maintain orderly conditions.Factors Influencing Exchange RatesExchange rates are influenced by a variety of factors, including the supply and demand for currencies in the foreign exchange market. Economic indicators, such as inflation rates, interest rates, trade balances, and political stability, can impact the demand for a currency and consequently affect its exchange rate.Exchange rates are also influenced by market speculation and government interventions, as central banks may adjust interest rates or engage in currency market operations to influence the value of their currency.These factors can be summarized as follows:Supply and Demand: Like any other commodity, the value of a currency is influenced by the forces of supply and demand. If the demand for a currency is high relative to its supply, its value typically increases. Conversely, if the supply of a currency outweighs the demand, its value may decrease.Economic Factors: Economic indicators, such as interest rates, inflation, GDP growth, employment data, and trade balances, can significantly impact exchange rates. Stronger economic performance often attracts foreign investment and boosts demand for a currency, leading to appreciation: Strong economic growth, trade surpluses, and low unemployment rates can contribute to currency appreciation.Interest Rates: Higher interest rates in a country can attract foreign investors seeking better returns, increasing demand for the currency and potentially strengthening its value. At the same time, lower interest rates may discourage foreign investment and lead to currency depreciation.Inflation: Countries with higher inflation rates tend to experience currency depreciation as the purchasing power of the currency diminishes. On the other hand, countries with lower inflation rates may witness currency appreciation.Balance of Trade: A positive balance, with exports exceeding imports, boosts foreign currency reserves, allowing a country to lower interest rates, spur economic growth, and fortify its currency exchange rate.Public Debt: Public debt and its potential inflationary impact, as well as its deterrent effect on foreign investment, can devalue a currency.Current Account Deficit: The current account deficit is interconnected with the balance of trade, and arises when a country's expenses surpass its earnings. A greater current account deficit relative to a trading partner can diminish a country's currency value compared to that partner's currency.Political Stability: Political stability fosters investor confidence, attracts foreign capital, and strengthens a currency.Market Sentiment and Geopolitical Factors: Political stability, geopolitical tensions, and investor confidence are just a few examples of the factors that can affect market sentiment and, consequently, exchange rates. Positive sentiment can lead to currency appreciation, while negative sentiment can result in depreciation.Government Interventions: Governments possess a range of methods to manage their currency exchange rates. These strategies include adjusting interest rates, purchasing or selling foreign currency, influencing lending rates, printing money, and implementing additional measures. These interventions are typically done to maintain stability, support economic objectives, or address extreme fluctuations.Do Exchange Rates Matter When Sending Money Abroad?Yes. Exchange rates matter when sending money abroad. Being aware of exchange rates and seeking favorable rates can help ensure that you, as a sender, maximize the value of your transfer and provide your recipient with the most beneficial outcome.Top reasons why exchange rates matter when sending money abroad include:Value of the Transfer: Exchange rates determine the conversion of one currency to another. When sending money abroad, the exchange rate determines how much of the sender's currency will be converted into the recipient's cash. A favorable exchange rate can result in the recipient receiving more funds, while an unfavorable exchange rate can reduce the value of the transfer.Cost of the Transfer: Exchange rates impact sending money abroad. If the exchange rate is unfavorable, it means that the sender's currency will have a lower value when converted to the recipient's currency. As a result, the sender may need to transfer a larger amount of their currency to achieve the desired value in the recipient's currency, resulting in higher transfer costs.Timing of the Transfer: Exchange rates are subject to fluctuations due to various economic and market factors. The timing of the money transfer can significantly impact the exchange rate obtained. By monitoring exchange rate movements, the sender can choose a favorable time to initiate the transfer and potentially optimize the value of the transfer.Cost Comparisons: Different service providers offer varying exchange rates for currency conversions. Comparing exchange rates among different providers can help the sender find the most favorable rate, allowing for more value to be transferred to the recipient.How to Send Money AbroadSending money abroad involves several steps to ensure a smooth and secure transaction.Research Transfer MethodsThere are different methods for sending money abroad, such as bank transfers, online payment platforms, or remittance services. You can compare fees, exchange rates, and delivery options to choose the most suitable method for your needs.Collect Recipient InformationCollect the necessary information from the recipient, including their full name, contact details, and bank account information. Ensure you have accurate and complete details to avoid any delays or errors in the transfer.Choose a Service ProviderSelect a reputable service provider or institution to facilitate the money transfer. Consider factors such as fees, exchange rates, transfer speeds, and customer reviews when making your choice. Specialized money transfer companies are better than banks or other financial institutions, as they tend to have higher transfer costs, slower transfer speeds, and hidden fees.Initiate the TransferProvide the required information to the service provider, including your details, the recipient's information, and the amount you wish to send. Double-check all details for accuracy before proceeding.Pay for the TransferFollow the instructions provided by the service provider to pay for the transfer. This can usually be done through various methods such as bank transfers, credit/debit cards, or online payment platforms. Ensure you understand the fees and any additional charges associated with the payment.Confirm and Track the TransferAfter initiating the transfer and making the payment, the service provider will provide you with a confirmation or transaction reference number. Keep this information safe and use it to track the progress of the transfer. Most service providers offer tracking options to monitor the transfer's status.Notify the RecipientInform the recipient that you have sent them money and provide any necessary transaction details or reference numbers they may need to receive the funds. Advise them to monitor their account for the incoming transfer.ConclusionUnderstanding international currencies and exchange rates is important for anyone engaging in global transactions. Having a comprehensive knowledge of different currencies and their dynamics will empower you to navigate the complexities of the global economy more effectively.It is advisable to compare the available options before finalizing your decision when sending money overseas. While banks may seem convenient for international transfers, specialized money transfer providers offer superior exchange rates, transparent and affordable fees, and speed. Use the CompareRemit compare tool to view today's best exchange rates when sending money overseas!

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