Karnataka Bank Offers NRE Deposits at 9.75%

3 comments Written on December 22nd, 2011 by
Categories: FixedIncome

After the recent deregulation of NRE rates – deposit rates for Non Resident Accounts – Karnataka Bank offers 9.75% for the “repatriable” (can take it back) NRE account deposits for a year.

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This is awesome, because NRE Account interest is not taxed in India. In the middle east, govt taxes are zero (or very low) so the return is great in the absence of Indian taxes (applicable for other deposits like NRO or for resident accounts).

NRE accounts are in rupees, so the conversion to dollars is at the exchange rate one year later. NRIs can buy a one-year forward rate on the currency which is currently at 55 or so. That is about 6% higher than today so the fully hedged rate, for an NRI, is about 3.75%. But hey, if you believe that the rupee won’t be much worse than today a year from now, the return is very attractive.

(These deposits were at 3-4% earlier. Deregulation has fuelled the rate increase.)

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http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

3 comments “Karnataka Bank Offers NRE Deposits at 9.75%”

Hi Deepak,

Have been following your blog for sometime now and it is simply superb. It will be great if you could do a post on currency forwards and how onsite employees could use it to lock the current dollar rates (Account requirements, where to get the deals, pricing, NSE currency options).

Thanks,
Mihir

Hi,

At the current rate of 9.25% return on SBI deposit for 10years that is also tax free for NRI, should an NRI go for an FD (for 10years horizon) or should stick to MIP. (this question is based on your article regarding MIP VS FD). Ofocurse for 10years horizon equity or balanced fund is the best, but if the capital protection & along with little capital appreciation is my expectation.

Dear Deepak,

NRI’s are getting 9 to 9.5% tax free returns on NRE Fixed Deposits (even for a 10Year period) nowadays.

Is it not a wise decision for a conservative investor to book a 10Year FD at these rates and opt for quaterly payout and then invest that payout systematically in quality equity mutual funds for 10years (via SIPs) that can be expected to give a return anywhere between 10 to 18%. This I think is one of the best opportunity for NRI’s to get a capital risk free post inflation adjusted returns and I expect the capital + FD return + SIP return to multiply the wealth anytime between 2 to 4times easily and with no risk to capital. No need to look for MIP, Debt funds, Capital protection funds and FMPs.

Do you think the above is a wise Idea, provided that the person is fully invested in equities for long term goals and hence looking for a capital safety with adequate inflation adjusted returns. Are anything I missing to look in to?

Looking forward for your feedback.

Regards

Ajay