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- How to choose a Non Resident Account?
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| How to choose a Non Resident Account? Posted: 05 Oct 2012 06:59 AM PDT Download Mutual Fund Application Forms
Consider taxation and currency risks before choosing between NRI, NRO and FCNR accounts
The rupee has slid from 51-52 per dollar in January to 56 this month. To arrest this fall, the Reserve Bank of India (RBI) deregulated interest rates on non-resident ordinary (NRO) and non-resident external (NRE) accounts in December 2011. Recently, it also freed rates on foreign currency nonresident (FCNR) accounts.
Interest rates on NRE accounts rose 350 to 400 basis points after the deregulation. "The interest rate on FCNR accounts may see a similar spike. For NRIs, this is great news.
But, how do you pick between these accounts? For most NRIs, tax liability on interest earned in these accounts and currency risk need to be considered before choosing. Heres some help:
NRE account
This is for foreign and repatriable funds. Foreign currency here has to be converted into rupees. State Bank of India (SBI) is now paying nine per cent on a one-year deposit, against 2.5 per cent in August 2011. Others like ICICI Bank, HDFC Bank and Bank of Baroda have hiked rates by 500 to 600 basis points. You can take a loan up to ~100 lakh against funds in this account. Joint accounts can be held only by NRIs.
The balance here is freely repatriable. Account holders use NRE accounts to play in currency. Opt for NRE deposits if you anticipate correction in rupee (appreciation). Say an NRI invested $100 when the rupee was at 50, or ~5,000 (100x50). Assuming he expects the rupee to appreciate to 45, he will make $111, plus interest on maturity (5,000/45). But if the rupee depreciates at the time of maturity and repatriation, he will lose.
The interest earned on this account is tax-free in India but can be taxed in countries where global income is taxed.
NRIs who do not earn enough interest in their resident countries can put money in NRE accounts for lucrative rates.
NRO account
This account can hold income earned in India (dividends, pension or rent. NRO helps make payments in rupees and, hence, those with dependents in India. the NRO account does not allow withdrawing the deposited funds.
This, too, is a rupee account like NRE accounts, so currency risk exists. It allows only up to $1 million (~5.5 crore) to be repatriated per financial year. Most banks are paying between seven and nine per cent.
Any remittance done from an NRO account is subject to tax deduction at source (TDS), at 30 per cent. In case of a double taxation avoidance agreement (DTAA) between India and other countries, the TDS rate can be lower, like it is 15 per cent in the case of India and the US. NRO deposits may also be taxed in the NRI's resident country. NRO accounts can be jointly held even with an Indian resident.
FCNR account
The FCNR balance lagged NRE's, another reason to free its rate. It offers only term deposits of one to five years. The money put here can be held and withdrawn in foreign currency, involving zero currency risk.
On dollar and euro-denominated deposits, FCNR accounts earn between three and four per cent, depending on the term. Similarly, on pound-denominated deposits, it pays four-five per cent.
Principal and interest earned on FCNR is freely repatriable. Interest is tax free in India but can be taxed in the resident country, depending on applicable tax norms. Loans up to ~100 lakh can be extended against funds in an FCNR.
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| Posted: 05 Oct 2012 06:02 AM PDT Download Mutual Fund Application Forms Call 0 94 8300 8300 (India)
With gold prices rising and debt holding steady, fund houses have launched multi-asset funds for passive customers who are not so nimble while churning their portfolios. These schemes invest in gold, debt and equities with the logic that debt will provide balance to the portfolio and gold or equity or both in tandem will give higher returns.
In January, Morgan Stanley launched its multi-asset fund even as others such as Axis, Canara Robeco and ING have similar schemes. Recently, Quantum Mutual Fund launched a similar product.
The biggest advantage of such a fund, These are best suited for passive investors who are not able to manage various asset classes in their portfolios regularly. Rebalancing of portfolios is time consuming and expensive. With such a scheme you need not pay rebalancing costs at an individual level. Mid/multi cap equity at the fund said since the asset classes have low/negative correlation, it reduces downside risks significantly without sacrificing returns. The fund would try to deliver consistent returns over the long term, with much lower levels of volatility or risk.
In the last six months, these funds have given returns of between five and nine per cent.
The Sensex during this period has gone up 12 per cent, gold funds have returned investors 9.49 per cent and debt funds between three and five per cent.
So say, if you had created a portfolio six months before and invested 50 per cent in equities, 30 per cent in debt and 20 per cent in gold, the portfolio would have earned 4.5 per cent. From this perspective, these funds have been at par or even better than self-created portfolios.
But while the returns have been comparable, wealth managers are not keen on them. They do not really add any value to the portfolio. This is because most of their investments go into debt, making it a more debt-oriented fund. We rather suggest investors to invest in MIPs and gold separately.
However, the biggest problem is on the taxation front. These schemes are taxed as debt funds, which means, long-term capital gains are taxed at 10 per cent without indexation or 20 per cent after indexation, leading to high taxation. In the short-term, the gains are added to income and taxed as applicable.
On the other hand, there is no tax on equity schemes after one year, whereas gold schemes and debt are taxed like debt schemes. So, the tax incidence is lower. Hedges like debt in the portfolio, and many times, lower exposure to gold and equities, returns may also get capped Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms Best Performing Mutual Funds
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| Mutual Fund SIPs are better than timing the stock market Posted: 05 Oct 2012 04:24 AM PDT Download Mutual Fund Application Forms Call 0 94 8300 8300 (India)
Mutual Fund SIPs are better than timing the stock market
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms Best Performing Mutual Funds
Invest in Tax Saving Mutual Funds Download Any Application Forms Buy Mutual Funds Online Invest Online Buy Gold Mutual Funds Invest Now  |
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