In the previous chapter, you discovered the important things to have in your financial checklist when you return to India as an NRI. But what if you are an Indian resident who is leaving the country for the first time - for an extended period? In that case, your residential status will soon change to that of an NRI.
And what are the important things you should do - financially - before you become an NRI? Well, that’s what we are going to be looking at in this chapter. Here are some important things to be aware of with regard to your Indian investments and your finances in general when you become an NRI.
1. Have earnings originating from your Indian investments? Open an NRO account
If you have any investments in India that offer regular income to you, those earnings are considered to be originating in India. For instance, say you have a residential property that gives you rental income. To receive this income when you become an NRI, you need to have an NRO account. This is required as per the RBI’s directions. You can either convert your existing savings bank account to an NRO account, or you can open a new NRO account directly. You can deposit your earnings from India in this account.
2. Revisit your mutual fund investments
If your residential status is going to change to an NRI, then you need to also review your mutual funds beforehand. You’ll need to inform your mutual fund house and update your residential status, overseas address and other details in your KYC documents. Additionally, to make fresh investments in mutual funds, you need to route your funds through an NRE account. Many fund houses also have restrictions on investments by NRIs in the USA and Canada, since the compliance requirements are complex. So, check this before you go abroad.
3. Open a PPF account before you become an NRI
NRIs cannot open a PPF account and invest in the scheme. However, the good news is that if you already hold a PPF account before you become an NRI, you can continue to keep it active and invest in it. So, if you haven’t invested in the PPF scheme yet, and wish to invest in it for the long term, it is best to open your PPF account before your residential status changes. That way, you can continue to earn interest on your investments for 15 years, at the same rate applicable to Indian residents.
4. Open an account under the Portfolio Investment Scheme (PIS)
As an NRI, you may also want to continue to invest in the Indian stock market. And the good news is that you can certainly do so. But before you go ahead and invest in Indian stocks as an NRI, you need to have an account under the Portfolio Investment Scheme (PIS). Additionally, keep in mind that shares traded through an NRE account can be repatriated, while those traded through an NRO account cannot. So, if you already have shares in your demat account as a resident Indian, you need to get them transferred to your PIS account when you become an NRI.
5. Check with your insurer about your existing insurance plans
NRIs can buy life insurance policies. But what happens if you bought a policy as a resident, and your status is now due to change to an NRI? To know the details, it is best to check with your insurer. Broadly speaking, you will need to update your KYC details. And life covers also cover incidents that occur outside India, except certain countries. So, to know the nitty gritties, check with your insurance provider if the policy you hold is valid outside the country.
Wrapping up
So, this sums up the key things that you need to know about your finances and investments when you become an NRI. You can use this knowledge to plan your investments and your money better, so you can make the most of your funds whether you are a resident or a non-resident.
And with this, we come to the end of another module in Smart Money. But there’s a lot more that you can learn about finances and investing. Keep the journey of learning going, with the chapters in the next module.
A quick recap
- If you have earnings originating from your Indian investments, open an NRO account to continue receiving such earnings.
- In case your residential status is going to change to an NRI, then you need to also review your mutual funds beforehand.
- If you haven’t invested in the PPF scheme yet, and wish to invest in it for the long term, it is best to open your PPF account before your residential status changes.
- As an NRI, you may also want to continue to invest in the Indian stock market. And the good news is that you can certainly do so. But before you go ahead and invest in Indian stocks as an NRI, you need to have an account under the Portfolio Investment Scheme (PIS).
