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Benefits of FCNR Deposits

Foreign Currency Non-Resident Deposits are taking up a prominent spot in the investment portfolio of the Non-Resident Indian. With its benefits ranging from protection against the currency volatility to premature withdrawal, as well as the higher interest rates, FCNR are a choice investment. With the RBI guidelines issued in 2011, FCNR has become an option for any currency holdings by an investor. A look at the investment morale of the NRI reveals that this is seen as a steady investment by many. The assurance of the return is a key factor in the confidence of the investor.

FCNR stands for Foreign Currency Non Resident. As the name suggests, these accounts are held by Non Resident Indians in Foreign Currencies. The account is not a savings account as is normal with banking practices. It is in fact a term deposit account held by the Non-Resident Indian or by a Person of Indian Origin (PIO) who may not be a resident.

From October 2011, the Reserve Bank of India has issued guidelines for all authorised dealer banks to accept these deposits in all permitted currencies. Prior to this guideline, deposits were allowed in only six currencies – Japanese Yen, U.S. Dollars, Euro, Pound Sterling (GBP), Canadian Dollars, and Australian Dollars.

The Indian Rupee today remains a volatile currency. For the NRI or PIO looking to invest in India the FCNR deposit is a good option, and it is not dependent on the volatile nature of the Indian Rupee. The funds can be parked in such an account till such time as it needs to be paid in India. This reduces the risk of converting the currency too early or too late in the transaction. Funds in these deposits have to come from overseas funds available with the account holder. Funds can be transferred by cheque from any foreign currency account. Another option is to transfer the funds from an NRE account held by the account holder in the bank. Currency notes or travellers cheques can also be used to deposit funds in an FCNR account.

The minimum tenure available for such deposits is one year and the maximum is five years. The funds can be withdrawn prematurely from the accounts. This attracts a penalty for the account holder and holders are thus advised against premature withdrawal. Withdrawals before a year in the account are not eligible for any interest payout either. Hence the account holder tends to lose out on the opportunity of income from interest too.

Interest rates for FCNR deposits are generally higher than the other avenues for investment available for the investor in the country of origin. This makes such a deposit very attractive to investors. The interest earned on the deposit as well as the principle amount can be repatriated by the investor. This ensures that the investor gets his extra interest income in the country of origin of the funds.
Thus, having an FCNR account is a very lucrative investment option for Indians abroad looking to invest back home. More foreign investors are looking at these deposits for their investment needs. An FCNR account is a very safe and stable investment for NRIs.

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