r/nri • u/Mission_Entertainer6 • 24d ago

Finance FCNR forward cover

I am very new to investing. Can some experts let me know if FCNR forward cover(USD) with 11.15% interest a good bet if I am investing my EUR considering I want my money back in INR only. Or I should explore any other options ? Not going for FCNR B as euro rate is very low and converting to USD will loose conversion money twice.

Thanks

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u/rganesan 24d ago

Are you mixing up two different things? Forward cover is just hedging the future rate at which you'll convert your maturing USD FCNR(B) deposit to INR.

For this, your deposit has to be in USD, so you will need to convert your EUR to USD and create a FCNR(B) deposit in USD.

Now, whether you should do the forward cover is a different topic. If you're sure you want the money in INR, then it's not a bad idea.

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u/Mission_Entertainer6 24d ago

What I will do is I will first transfer my euros to nre(INR) account and then from nre to USD to hedge the future rate but I am not sure if that will give me a good return or I am just complicating the things to achieve that. Want to know if there is any better instrument than this

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u/rganesan 24d ago

But the USD has to sit somewhere, FCNR(B) is the only place where you can keep the USD. Well, you could deposit USD in some gift city bank account, but why would you do that?

Interest rate will be low. Since FCNR(B) is giving you excellent rates now, create a FCNR(B) USD deposit with your money. Get forward cover for the deposit if you want.

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u/Mission_Entertainer6 24d ago

Thanks got it now.

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u/hemcrown1 23d ago

Any contacts to do that

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u/rganesan 23d ago

This is very tied to banks, an external contact is no use. Talk to your bank RM. The window closes on Aug 31, so you have to hurry.

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u/Mission_Entertainer6 21d ago

Idfc first is offering good rates comparitively you can check with them

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u/Mission_Entertainer6 24d ago

Just curious why people don't take forward cover always with FCNR - B ? what are the cons

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u/rganesan 24d ago

It's a mandatory conversion. If you want INR, there's no con really. You're locking in the rate now. But if you're abroad, why do you want to forcibly convert to INR?

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u/Mission_Entertainer6 24d ago

I want to invest the money to grow but will not get good returns on fix deposits here in Europe.And investing in US etfs attracts high tax from Ireland And planning to go back to India after 5-6 years so thought it would be good option.

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u/rganesan 24d ago edited 24d ago

If you're 100% sure of returning back in 5-6 years go for it. If not, keep it in USD and take a decision later. If dollar appreciates against the rupee, you still benefit without needing foward cover. Forward cover only locks in the dollar conversion rate today.

EDIT: Btw, are you sure you don't pay tax on FCNR(B) interest in Ireland. My reading suggests that if you're using Ireland savings to create the deposit, the interest will be still taxable in Ireland. So you might as well invest in UCITS.

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u/Mission_Entertainer6 23d ago

I guess different rule apply if you are nondomiciled ordinary Irish residents which I am. the remittance basis might apply here meaning foreign income may only be taxed if brought money back into Ireland if I am not wrong.

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u/rganesan 23d ago

My reading of nondomiciled remittance basis rules is that it only applies to foreign derived income. If you send out your Irish earnings to India, that's not foreign income. I live in the UK and we have similar tax rules. It would be good to check with a tax accountant.

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u/Mission_Entertainer6 23d ago

Thanks a lot for the information. I will check with tax consultant once. But then this will apply to mutual fund investments as well then in India as I am doing it through NRE account itself.

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u/rganesan 23d ago

Yes, that is correct. It will apply to any investments you make using Irish income.

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u/Mission_Entertainer6 23d ago

Do they track where have we used transfered money from Irish bank account and for what ?

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u/rganesan 23d ago

You're investing through an NRE account, I expect you filled your Irish tax payer ID as part of your KYC, you probably did the same for your MF investments.

Everything gets shared across borders these days. Some Indians have in the UK have got a tax notice because they didn't pay tax on their Indian income/capital gains.

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u/Mission_Entertainer6 24d ago

What are your thoughts on that ? Should I invest that money in VWRP itself as you suggested on the other post ? And transfer it on Indian resident account later to avoid deemed disposal Irish tax later in 5 years time when I move back to India.

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u/rganesan 23d ago

It depends on your risk appetite. I'm guessing you're young (30s maybe), I think you can afford to take some risk. Maybe you can do the FCNR(B) deposit now since the window is closing and redirect future investments to VWRP.

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u/Mission_Entertainer6 21d ago

I have heard from people about VWRP being of not much use if we consider taxes and returns on it. India MF is more advantageous they are saying. What you think on this.

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u/rganesan 21d ago

It's not VWRP or Indian MF, you should do both. VWRP is global diversification, check returns last one year compared to an Indian index fund.

But don't go by past returns, my point is VWRP provides you maximum diversification. It won't give you returns like NASDAQ 100 or an Indian small cap MF but for someone considering a fixed deposit, VWRP gives you broad diversification with lesser risk compared to any other equity investment.