The PPF/NSC is deemed to be closed when the status changes to non-resident Indian
Public Provident Fund (PPF) and National Savings Certificate (NSC) schemes are preferred tax saving instruments, earning 7.8% annual return currently. However, recent norms say that as soon as one becomes a non-resident, her/his PPF and NSC account will be deemed to be closed. It means that they will no longer be able to get those high returns after acquiring NRI status. In this backdrop, DNA Money finds out the alternative avenues for NRI investors.
Closure process: The PPF/NSC is deemed to be closed when the status changes to NRI. If the NRI continues with PPF/NSC, she/he would get an interest as given by post office savings banks account, which is about 4%. "Considering this return is too low and does not even beat inflation in India, it is advisable to withdraw the accumulated corpus and invest in other higher yielding, tax efficient investment options," says Amar Pandit, founder, HappynessFactory.in. Problems may crop up during the closure. "...for closing a PPF/NSC one may have to fill out forms (with signatures) and an NRI may not be able to do that immediately when physically outside the country," says Suresh Sadagopan, founder, Ladder7 Financial Advisories. They would be able to do that only when they come to India. "We need to bear in mind that if the account has been opened in one city, she/he would now have to go to that place to close the account, which is an added inconvenience," he points out.
Time on hands: In case the NRI wants to invest the PPF/NSC money in India, how much more time they will spend abroad is important, advises Anil Rego, CEO, Right Horizons. Before choosing any alternative scheme, one should consider investment purpose and also tax implications, he adds. "If the PPF was started for the purpose of retirement, then one should shift lumpsum amount in any better performing debt mutual fund scheme and can start STP (Systematic Transfer Plan) in any large-cap or diversified mutual fund. It will give tax efficient/tax-free return," avers Sushil Jain, national head - financial planning, Bajaj Capital. NSC is a short-term one-time tax saving investment compared to PPF. This amount can also be shifted to debt MFs. "Same way, if the NRI is nearing to retirement than she/he can also invest in debt MF, which is mainly invested in government instruments and AAA rated bonds where she/he may get better returns with indexation benefit along with anytime liquidity," adds Jain.
Mutual funds: In any case 4% returns, retaining funds in PPF and NSC is not much different from leaving it in a savings bank account. This can be a big setback to the investor, especially if they are looking to settle in India post-retirement. If you want to just keep funds in one place and earn returns, debt MFs are good. "Especially for the risk-averse, there are debt funds that provide returns comparable to the PPF," feels Adhil Shetty, co-founder and CEO, BankBazaar.com. However, it is important for US- and Canada-based NRI investors to check which mutual fund house accepts investments from them, from a regulatory perspective. "A trusted financial planner, can help you select a mutual fund that is suitable for you," adds Pandit.
NPS, NRE & FCNR deposits: If an NRI is ready to be flexible with growth, liquidity and tax-treatment, investments in National Pension System (NPS) is advised. Naveen Kukreja, CEO and co-founder, Paisabazaar.com, says, "Unlike PPF and NSC, NPS allows the choice to allocate investments among equity, corporate debt and or government securities on the basis of the investor’s risk appetite. NPS investments also qualify for income tax deductions under Section 80C and Section 80CCD(1) without any restrictions on the repatriation of pension money." NRE deposit option is useful for those risk-averse investors who still want to have money available to them in India. "It can earn a fixed tax-free interest of 6-6.25% p.a. without any risk of currency/market fluctuation," says Chetan Chandak, head of tax research, H&R Block India. FCNR deposits are also a stable option. Those NRIs who are not looking at coming back to India in foreseeable future and are in search of investment avenues which can guard them against currency risk can look at FCNR deposit as one of the alternatives.
MAXIMISING RETURNS
- The PPF/NSC is deemed to be closed when the status changes to non-resident Indian
- If the NRI continues with PPF/NSC, she/he would get an interest of about 4%
- In case an NRI wants to invest the PPF/NSC money in India, the time they will spend abroad is important
- In case of 4% returns, retaining funds in PPF and NSC is not different from keeping them in SB account
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