NRE or NRO? PIS or non-PIS? – Understanding NRI accounts

If you’re an NRI, managing finances in India can be tricky, especially with the various account types and investment options to consider.

In this post, we’ll break down everything you need to know about NRE, NRO, PIS, and Non-PIS accounts and also discuss why NRIs from the U.S. and Canada face restrictions on investing in Indian mutual funds.

Who is an NRI?

An NRI, or Non-Resident Indian, is an Indian citizen or a person of Indian origin who resides outside India for employment, business, or any other purpose that indicates an intention to stay abroad for an indefinite period. The Indian Income Tax Act defines NRIs based on their physical presence in India during the financial year, with specific conditions that must be met to qualify. Broadly speaking if you live outside India for 182 days or above, you are an NRI.

What Are NRE and NRO Accounts?

Non-Resident External Account (NRE) and Non-Resident Ordinary Account (NRO) accounts are bank accounts designed specifically for NRIs, to help them manage their income earned abroad and in India. The differences between the two are:

What are PIS and Non-PIS?

While NRE and NRO accounts are bank accounts, PIS (Portfolio Investment Scheme) and Non-PIS refer to specific types of investment routes for NRIs in India. The differences between the two are:

Here’s a flow chart to illustrate the relationship between NRE, NRO, PIS, and Non-PIS:

In 2016, RBI issued a circular (PDF) stating existing NRO (PIS) accounts may be re-designated as NRO accounts. As a result, there is no concept of NRO PIS accounts. However, banks may have renamed these accounts to provide a full suite of NRI accounts for seamless access to different services, but one should weigh the added convenience against potentially high cumulative fees.

You can choose to open an NRE PIS, NRE Non-PIS, NRO PIS or NRO Non-PIS account. 

Below is a table outlining what is allowed and what isn’t for each of these accounts:

Why do NRIs from the U.S. and Canada face restrictions in mutual fund investments?

NRIs from the U.S. and Canada often face difficulties when trying to invest in Indian mutual funds due to several regulatory hurdles, primarily revolving around FATCA. The Foreign Account Tax Compliance Act (FATCA) mandates that financial institutions report details about taxpayers to the Internal Revenue Service (IRS) on a daily basis. This increases compliance burdens for the Asset Management Companies (AMCs). Failure to comply with the regulations can lead to hefty penalties. 

AMCs that allow NRIs from the USA and Canada to invest in mutual funds do so with many terms and conditions. The following AMCs are some that allow NRIs from the USA and Canada to invest as on the date of publishing this article:

• Aditya Birla Sun Life Mutual Fund
• Nippon India Mutual Fund
• Quant Mutual Fund
• Sundaram Mutual Fund
• UTI Mutual Fund
• Parag Parikh Financial Advisory Services AMC

Check with the respective AMC for more details.