How NRIs can make use of recurring deposits?

RDs for NRI customersFor NRI customers, investment options could be NRE Recurring Deposit or NRO Recurring Deposits. Let us understand what each of these means and has to offer to the NRIs.

•    NRE RD Accounts: In this, the investments towards your deposit installments have to come from the NRE Accounts only. NRE are non-resident external accounts. The interest from an NRE RD is free from tax in India, and is freely repatriable. •    NRO RD Accounts: For these accounts, the investments towards the deposit installments can come either from NRE or NRO accounts. NRO are non-resident ordinary accounts. The interest from NRO RDs is taxable at a rate of 30%, plus the additional CESS. This is repatriable, subject to certain featured requisites.What to choose between NRE RD and NRO RD?Thus, the source of investment funds is a factor to decide, what option out of NRE RD and NRO RD you can opt for. If, for example, your funding is from an oversea source, you should prefer NRE Recurring Deposits. Whereas, if you are receiving your regular investments from rent or any other income source in India, then you can go for putting the same into NRO RD Accounts.

Advantages of RD to NRI investors:•    While the interest rates reaching a peak and then heading their way down, it is probably the appropriate time to freeze the investments into some good debt instruments. This may be another significant factor, while considering about RD investments.•    Another good thing about an RD account is that the monthly investments are not too big, and one gets benefit of the same interest rates as on FDs, without any mandate to commit the whole amount in advance. •    One more advantage with an RD account if in case you miss one or two of your installments owing to certain constraints, your deposit will be due for repayment on maturity. The same RD will mature on the completion of the contracted tenure, even if some of its installment payment is still pending. The actual maturity amount will of course differ from that mentioned in the Deposit Advice. This happens since you did not pay all of your installments. Certain banks do charge penalty for delayed/missed installments, however most banks do not. To ensure of the same, do read and note the bank conditions clearly. Interest Calculation for RD:The calculation of RD interest rates is in accordance with the directions of the Banks Association in India. The interests applicable for both the NRE RD and NRO RD are same as that of NRE FD and NRO FD respectively. The computation of interest on deposits takes place in every quarter, according to the rates applicable.Another point to remember is that the once the installment amount is fixed, it remains so without any later date modifications. Therefore, it is important to be sure of your committed amount.

Points to ponder over by NRI before investing in RD:•    RD does not permit the partial payment of installments.•     In case of NRE RD, the minimum and maximum lock-in period is 1 and 10 years respectively. If in case, one terminates his/her RD prematurely within a year, he/she will get their respective principal amount back without any interest.This holds true, as the interest is applicable only on maturity. •    RDs have nomination and joint account facility. •    The date of the RD installment depends on the account opening date.

RD seems a clear option, when you do not have a lump sum for investment and you want to be absolutely safe. The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company