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If your residency status has changed to a non-resident Indian, your Public Provident Fund (PPF) and National Savings Certificate (NSC) accounts will now be deemed to be closed. Your PPF accumulation in such case will earn you a meager 4 per cent, while the NSC will earn you the rate given in post office savings account. Both PPF and NSC give interest income of 7.8 per cent interest at present.
So, what should NRI’s who have PPF and NSC accounts do now with their corpus in these small savings accounts? Personal finance advisors feel the money should be withdrawn and invested in instruments that promise to give you better returns.
“The accumulation in PPF/NSC can be withdrawn. The returns will not even beat inflation and hence it is advisable to opt for better alternatives,” S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors told Moneycontrol.
Rahul Agarwal, Director Wealth Discovery agrees. “The accumulation in these accounts should be shifted to investment products which offer better returns,” he said.
Personal finance advisors say among the issues to consider is whether the NRI would want to eventually settle in India or abroad, repatriability of Indian investments and the laws relating to taxation in the country where they are residing.
Anil Rego, CEO, Right Horizons, says if an NRI has plans to return to India and wants to have a retirement corpus back home, then they should consider investing in the National Pension System (NPS). “If you plan to come back to India in the long-term and your retirement needs are unmet, you should consider NPS as an alternative. NPS gives you different fund options depending on your risk-appetite. The returns in NPS will be higher compared returns in any investments in developed markets,” Rego said.
However, he says that the considerations would be different for NRIs in different countries. “If an NRI in the US is unsure of future plans and could settle down there after retirement, NPS will not make sense. They will have to disclose the investment and the annuity under FATCA. If you are an NRI in Gulf countries, you should consider NPS in any which way since they are not subjected to any kind of tax. NPS is best for NRIs in Gulf countries because such NRIs don't have great option to settle in those countries after retirement. Since they will come back to India after 25-30 years of working life, use NPS to build a solid retirement corpus through a combination of equity and debt,” Rego said.
Repartriability of funds is another issue that NRIs should consider, says Rahul Agarwal. “Before talking about retirement options, it is important to first analyse if the repatriability of invested funds. If the NRI plans to comeback to India in the future he/she can opt for non-repatriable products whereas if that’s not the case only repatriable investment options should be considered. Once the issue of repatriability is settled the investor should analyse the risk tolerance and opt for products that suits his/her needs,” Agarwal said.
Agarwal said NRIs who would have accumulation in their PPF/NSC accounts can consider equity and debt mutual funds to park their funds, besides other safe options such as government securities.