For NRIs looking forward to make huge savings with small monthly investments, the Recurring Deposits seems to be an excellent option. A recurring deposit account is one that enables the depositor to save by paying an agreed fixed monthly sum for a required period. This type of an account goes well with people with fixed income groups.
Recurring Deposits yield the compound interest on a quarterly basis. The rate of interest is dependent on the period of the monthly deposits. Longer the time of your monthly deposits agreed upon, higher will be the interest rate pertaining to rules.
Understanding Recurring Deposits (RDs) in Detail
RDs offer its customers an approach, based on a precise goal, for investments at alluringly high rates. Thus, no matter you want to build a fund for your child’s education, or buying a house/car, or a dream holiday, RD will help you save a little every month towards achieving your financial goals.
Whatever your purpose/goal may be, an RD scheme will ensure you have sufficient funds at the time of need, to reach your goals.
RDs for NRI customers
For 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:
- NRO 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.
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
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. If you are REALLY inclined to make a solid difference in achieving your financial goals by creating a financial plan, then I would suggest you to test-drive our services by opting for