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

November 12, 2024

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:

Feature NRE NRO
Purpose For NRIs to park foreign earnings in India For NRIs to manage income earned in India
Repatriation Funds are fully repatriable. No additional formalities. Limited to $1 million per financial year. Must submit Form 15CA and Form 15CB, which can be obtained from their bank every time to repatriate.
Taxation Interest earned is tax-free in India Interest earned is taxable in India
Currency Maintained in Maintained in
Deposit Deposits in foreign currency Deposits in both foreign currency and ₹
Withdrawal Withdrawals in Withdrawals in

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:

Feature PIS Non-PIS
Purpose For direct equity investments in Indian stock markets For other investments, including mutual funds, bonds, and non-equity securities, some of which may be traded on stock exchanges
Shareholding restrictions RBI has an upper cap on NRI shareholding in a company No restrictions
Regulation Governed by RBI. A PIS letter from RBI is required to make investments Not governed by RBI

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.



Business Analyst, Zerodha


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5 comments
  1. Akash says:

    For the NRI USA and Canada the ones that I checked in late 2023 and allow to invest in Mutual Funds are

    SBI
    UTI Mutual Fund
    Parag Parikh Financial Advisory Services AMC

    Rest in the above list were not responsive.

  2. Paras says:

    Being an NRI from canada it is okay for me to invest in mutual funds from regular NRO account by transferring money from NRE account ?

    I am using NJ Wealth services to do so?

    Please also explain on the taxation when I redeem and also if possible elaborate on TDS, LTCG or STCG RULES.

  3. Ashish says:

    Can i convert my current resident account to NRO PIS without diluting my current stock and MF holdings?

    • Satya Sontanam says:

      Hi Ashish,

      Replying on behalf of my NRI team – RBI issued a circular stating existing NRO (PIS) accounts may be re-designated as NRO accounts. As a result, there is no concept of NRO PIS accounts. At Zerodha, a resident account can be converted into an NRO account. For more details, you can email [email protected]. For accounts with other brokers we recommend checking with them.