Converting to NRI: 5 money matters you must consider before travelling abroad

When you leave India to settle abroad, there are plenty of factors you need to take into consideration, especially when it comes to your financial requirements. One factor you need to consider is that your current funds are secure, and accessible, especially when you travel abroad. While the country you may be travelling to will have their own laws regarding their banking, you will need to adapt to their new environment without losing control over your own finances.

Keeping this in mind, here are a few steps you can take:

Update your bank account: If you have any bank accounts in India, it is only meant for resident Indian. Therefore, when you travel abroad, your residency status will change. This, in turn, will affect your ability to hold a resident bank account. You will need to change your resident accounts into any of the NRI accounts namely the NRO or the NRE account. Each of these accounts has different properties and functionalities. For example, the NRO account allows you to hold income accrued from India and will pay interest on your investment. On the other hand, the NRE account can be used to repatriate funds without any limitations. Additionally, rupee currency can be invested in this account.

Manage your investments: You will need to take stock of all your investments before moving out of India. Before you do so, you will need to make a decision about the investments you want to hold and which you wish to liquidate. For example, if you have a demat account, you will be required to relinquish your hold on the account. You can even open a portfolio investment scheme where you can transfer all your holding before you get your NRI status. If you cannot make these decisions on time, you can appoint someone and give them a power of attorney to act on your behalf and execute your transactions.
  
Update your KYC status: It is crucial that you update the KYC status for every financial product your hold. This can include bank accounts, insurance policies and mutual funds. Once you leave the country and settle abroad, your address and residency status will change, and therefore, you will need to update your KYC.

Evaluate and update your insurance cover: Before you change your status to an NRI, you will need to ensure that all is covered in your health insurance policy, especially outside the country borders. While health insurance companies allow treatment within the country, it would also include medical treatment abroad. However, you will need to evaluate your cover size and increase it before you change your residency status.

Debt management: As far as possible, try and close all existing debts before you shift to another country. If you have any outstanding loan balances after shifting, you can try for timely repayments from your NRO or NRE account. You can appoint a POA to manage your debt, as it will help you immensely after you leave the country.

Are you eligible for an education loan?

The education loan has a big market, considering that several students are interested in pursuing a higher education both, within the country and abroad. Several banks offer a study loan to the meritorious and deserving students who require finance to continue their studies.

Not only has such an education loan helped boost careers, it also helps individuals afford the payment, something which they wouldn’t be able to do on a normal basis. However, before even accessing this loan, you would first need to be eligible for it.

Most banks set down certain criteria for applicants who would want to purse this form of financial assistance. They consider a certain set of factors before reviewing the application. It includes:

• Student’s academic background and qualifications. It would also include the track record of the marks, credits and achievements.
• The course that is being sought. These courses must be accredited and worthy of studying. Additionally, it should also possess a good chance of placement and job prospects, which allows the applicant an opportunity to repay the loan.
• The institution where the course will be pursued. Whether it is a school, college or even a university, it should possess a good reputation along with the right accreditation.
• The collateral offered during the loan application. The bank will consider the value of the collateral, whether or not the applicant can afford it.
• Whether the applicant has potential co – borrowers or guarantors of the education loan. Furthermore, lenders will also check the job profile and credibility of these co – borrowers.  

Apart from these factors, certain set of courses are also eligible for education loans. Lenders will offer the loan to students to study in almost anything, so long as the course and the institute are accredited by the concerned authorities or possess a good reputation. Courses that are eligible for this financial assistance include:

• Undergraduate degrees/diplomas and special courses
• Postgraduate degrees/diplomas and special courses
• PHD’s and doctoral programmes
• Specialised courses, training and diplomas.

Alternatively, certain banks will sponsor a study loan for special courses, especially if there is a prospect of a job, or an enhancement in the current employment. Some of the courses include:
• Agri diploma
• Certificate courses from ITI
• Computer certification courses
• Courses run by State Skill Missions, State Skill Corporations, or National Skill Development Corporation
• Data entry operator course
• Degree or diploma courses for aeronautics, pilot training, shipping held by recognized regulatory bodies. This course is normally associated for the purpose of employment in India or abroad.
• Engineering diploma
• Nursing or teacher training certification courses and B.Ed
• Veterinary diploma
• Vocational courses run by government organization or certain departments.

Apart from the courses, certain institutes are also taken into consideration when it comes to their eligibility. Lenders will look at the institute’s reputation. Additionally, they may also have a pre – approved list of universities and even a blacklisted one. Some of the universities that are preferred for the studies in India and abroad include:

• Educational institutes that have been recognized by the UGC, Govt., AICTE, AIBMS, IMCR, etc.
• Polytechnic institutions that have been approved
• Reputed foreign educational institutions
• CPA in USA, CIMA-London, etc.

What are the tips to keep in mind when sending funds to India?

It could be very simple to select any money transfer service and send money to India. However, there are several important factors you will need to consider before taking this step. For one, you need to consider the foreign exchange rates as they are constantly fluctuating. At the same time, you also need to be aware of the charges and fees before initiating a transfer. Apart from these factors, there are plenty more that can make a difference to your money transfer.

Given below are some tips you can consider to help you make an informed decision that will help you save time and funds with any international money transfer to India:

• Compare the different money transfer services available in your destination. It will only take a few minutes, especially if the services and rates are presented online. In this way, you can compare for the beset exchange rates, transfer fees and the most reliable service.

• If you must, make a single large money transfer as compared to multiple transfers. Large money transfers will attract fewer fees and charges, as compared to smaller and multiple charges. If you most, look out for services that offer specialised services for small transfers for better exchange rates and fees.

• You need to be aware of the transfer limits. Normally, the transfer fee will be incurred depending on the amount of the transfer. So the more you transfer, the higher the fees will be.

• Pay close attention to the total cost you will be spending to send money to India. While the incurred fees may be low, the exchange rates could be high. On the other hand, a higher fee could be worth your expenditure, if the exchange rate will benefit you. In order to get a true comparison, calculate the final amount the recipient will obtain

• Don’t pay additional fees to make the transfer, unless there is an urgent requirement to do so. If the funds don’t have to be wired urgently, you can opt to choose a standard transfer, which will save your money and unnecessary charges.

• Keep a look out for fluctuating or indicative rates, especially when making an international money transfer to India.  The foreign exchange market is always active and always changes by the second. In other words, you can experience a significant plummeting or soaring of rates in a short span of time. Any transfer made during this time will benefit you or affect you. The only way to avoid such a situation is to be observant of the rates.

• Always stay informed about the procedures, alternative options and liabilities you may face in case your funds are not transmitted promptly. Don’t be afraid to ask for clarification or details whenever required. If you must, keep the second option in consideration so that you are prepared for any transfer during emergencies.

Credit cards: Common FAQ’s answered

Amongst the several banking cards that are available, the credit card has always been a popular choice for several reasons. While the requirements and reasons of the usage of the credit cards would differ from person to person, some of the common reasons would include convenient payment access, the means to access large sums, and the ability to repay back the borrowed funds with a low interest rate.

However, like any other banking card usage, there will be several questions and queries asked about the credit cards in India. Given below are some of the FAQ’s and their respective answer about credit cards:

Do I need to opt for a co – signer when applying?

If you don’t have the appropriate credit history or even little credit history, it is not uncommon for the lender to ask for a co – signer before your approval. As a co – signer, the individual must have an established credit history that would share the financial responsibility for the card. Normally, these individuals can be anyone who is a close friend or even a family member. This individual is equally liable for any debt that the principal card owner may gain when using the card. Therefore, the co – signer must be as responsible to using the card, as the primary card holder.

Is opting for a credit card a wise choice for my financial future?

While credit cards can be used for payments and transactions, it can also be used for another purpose, building a credit history. By building a credit early in life, you build a credit history right in the beginning itself, where rates are more affordable. In the future, a good credit would mean lower rates on loans, mortgages and a wide variety of credit cards. One way to start off, is by opting for the student’s credit card where you can opt for small and affordable purchases, while increasing your card limit as your expenditures and income increases.

What are the risks of a credit card?

Applying for the credit cards in India is often the first step to building a credit history. However, the expenditures you make it on is still a choice that depends on you. If you indulge in any irresponsible activity on the card, it will lead to the logging of negative information, which can stay on your credit report for a maximum of seven years. This in turn, will eliminate credit options for certain time lengths. Therefore, it makes sense to keep things easy right from the beginning than to get into trouble later on. However, there are a few steps you can take to ensure that you don’t risk your card:

• Pay your bills on time and in full to avoid added interest and fees
• Always create a budget as it will help you stay within your means
• Do set up account alerts as a security feature.

Facts you need to know about the NRO account

When a resident Indian becomes an NRI, the whole aspect of financial management will change. The normal rules and regulations pertaining to the residents will be completely for those who come under the NRI category. In this case, the NRI individual will be required to open an NRI account, which can either be the NRE or the NRO account. But in order to access funds and operate any investment in Indian, you can convert the current savings account into an NRO account.

But what is an NRO account? This account can be used to receive foreign remittances and can have a joint holder who is an Indian resident. In addition to this, the RBI also permits repatriations abroad, which is limited by a maximum annual amount.  At the same time, the interest that is earned in this account and credit balances are subjected to respective tax brackets. It is also subjected to wealth and gift tax.

Now that you are aware of what is an NRO account given below are some of the factors that you need to be aware of. They include:

Opening the account: In order to open the account for NRO, you will need to provide certain documents. It is important to provide documentary proof that you, as the account holder is now a non – resident, as defined under the government regulations and Indian tax laws. Once an individual becomes an NRI, he or she is not allowed to hold any bank accounts under the Indian residency status.

Converting the resident saving account into the account for NRO: As mentioned previously, you can get your resident savings account converted into the NRO account when required. However, you will need to submit a certain set of documents. As a part of the conversion process into the non – resident account, you will need to provide documents supporting your identity, your NRI status proof, proof of foreign address and two photographs.

Attesting proof of documents: When submitting the documents for the account conversion, especially when it comes to the proof of residence abroad, it can be submitted in the form of employment details, student status or dependent visa status. It can also be doneunder the copy of a resident permit in the overseas destination. However, this documented proof must be attested by the Indian embassy, notary or an Indian bank with an overseas branch. You can contact your bank to know which are the official institutes they recognise and accept.

Provision of local Indian address: If you as an NRI would want to ensure a convenient ease of operation, you can always mention a local Indian address. Like the previously mentioned documentation process, you will need to provide proof of the address along with attestation proof. 

Are you aware of the benefits of the NRE account?

As an NRI, the residential financial products, rules and regulations will not apply to you. That is because, you will need to opt for a specialised account, designed for the needs and formulated under government regulations known as the NRI accounts. Under this account, you can either opt for the NRO or the NRE account. Each of these accounts has their features and benefits which can be utilised for different purposes.
However, between both the accounts, there the NRE account is an ideal choice. But what is the NRE account? This type of NRI account can be held in the savings or current account, allowing the account holder to repatriate funds that come from outside earnings. The earnings can be easily transferred to India in a convenient and secure manner. The funds that are normally transferred to this accountis done in INR.
Now that you are aware of what is the NRE account, here are the different benefits you will be getting through this NRI account:

Tax benefits: This is one of the most important benefits to opening the NRI account. The interest that is earnedin this account, whether in the savings account or the fixed deposit, is tax-free in India. They are not included in your taxable income. This makes for an ideal benefit, especially if you have any income in India. Due to this factor, investing in an NRE fixed deposit will offer you one of the safest and secure investments that will offer you a high return.

Repatriation benefits: After the tax benefits, the second key advantage to this account is the repatriation benefits. You can easily move funds from the saving account because you can repatriate both the interest as well as the principal amount abroad. In other words, the funds in the account for NRE is fully and freely repatriable.

Low balance requirement: Due to the increase in competition amongst the banking institutes, both public and private sectors, the minimum balance for the NRE account has dropped significantly. Several bank and financial institutions are now opting for Rs. 10,000 as the minimum balance.

High-interest rate: Both the savings and the fixed deposits of the NRE account offer high-interest rates. However, this can vary between the different financial institutions. One of the most beneficial factors of this account is that the interest rate is calculated on a daily closing balance and the interest is paid half-yearly in June and December. With the right calculation and investment strategy, you can easily invest and get high returns.

Convenient benefits: Adding to the list of benefits of the account is convenience. While it can be easy to open an NRE account, you can now open this account online. You only need to fill a form online, take a printout and attach the self – attested copy of the required documents. Once all the required documentation and attestation is done, you can courier it back to India.
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FCNR Account: Are you aware of the pros and cons?

Earning in foreigncurrencyoffers you plenty of benefits, one of which includes, the high conversion rates. But while you, as an NRI, can always exchange the foreign funds for a higher conversion value, you get an added advantage if you invest the funds for a return on investment. This is when the foreign currency non – resident fixed deposit account will work in your favour.

Given below is all that you need to know about the fixed deposit pertaining to the FCNR account.
Advantages:

• The FCNR account works like the fixed deposit. It offers the ideal protection against forex rate risks, especially if they are maintained in foreign currency. In other words, if the funds are transferredin the currency value that it is invested in, it will be done without any loss of exchange.
• Any interest that is earned on the FCNR deposit in India is exempted from the Income tax.
• The FCNR account can have more than two NRI joint account holders. However, a joint account holder with another resident in India is not permitted.
• Funds in the FCNR account can be held in several major currencies, including Pound Sterling, US Dollar, Yen and Euro.
• The principal amount and interest earned are freely repatriable, to the depositor’s country of residence without any restrictions.
• The interest rates on the FCNR term deposits are payable after the end of the first year. The interest is then compounded on a half – yearly basis.
• The tenure of the account offered is not less than one year and not more than three years.

Disadvantages:

• The FCNR deposits are held only in term deposits. It cannot be held in current, savings or recurring accounts.
• There is a risk of investing in an FCNR deposit in a weak bank. The said bank may be unable to pay back the interest or even the invested funds upon maturity. Most credit guarantees in India covers accounts in India to around Rs. 1,00,000 or 1600 USD, which is considered low.
• In the event a financial meltdown occurs, banks may not be able to repatriate funds. One major example is the Greek crisis. Most individuals were restricted from withdrawing over 40 euros from their accounts.
• If the FCNR deposit is withdrawn in less than a year, no interest is payable on the deposit.
• If the account holder wants to take out a foreign currency loan in India against the FCNR accounts, it can be taken by the account holder only.
• The FCNR account can be transferred to the NRE accounts before maturity. However, any premature withdrawals will attract penalties. Additionally, swapping charges are applicable by the bank where the FCNR accountis held.
• The FCNR account can be renewed within 14 days after maturity. If it is not dining, then the bank will fix the interest rate on renewal.

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