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What are NRE and NRO accounts and is it mandatory to open a NRI account?

An NRI can either open an NRO or NRE savings account to invest in the Indian Stock Markets.

For trading in Futures & Options, an NRO account will have to be linked to the trading and demat account.

Non-resident External Account (NRE):

An NRE account is a bank account where both the principal and the interest earned can be repatriated. You can transfer foreign currency from your foreign bank account which gets converted to rupees when it hits your NRE account.

Funds kept in the NRE account can be converted back into dollars and can be transferred back to your foreign account along with the interest earned. This ability of money to be moved from a foreign country to the investor’s home country is called repatriability.

Non-resident Ordinary Account (NRO):

The major distinguishing factor is that money cannot be transferred from an NRO account to an NRE account. Also, money transferred from an NRE account to an NRO account cannot be transferred back to the NRE account. The ability of money to be moved from a foreign country to the investor’s home country is called repatriability. 

NRO has restricted repatriation. Non-resident Ordinary Account (NRO) is a bank account where principal and interest only up to $1 million per year can be repatriated. For trading in futures and options, a NRO account is required to be linked to your trading account.