Remitting money? Use lock-in facility to get best forex rate, say experts

Take into account transaction fee, conversion fee, and exchange-rate mark-up when comparing players' costs

With the rupee hitting a record low of 77.73 to the dollar in May, all those who need to send money abroad at regular intervals are under pressure. For them, it has become all the more crucial to select a cost-effective remittance service provider.

Indians send money overseas largely for education and travel. According to T C Guruprasad, managing director, EbixCash World Money, “They send more than $10 billion annually and this figure is growing at a compounded annual rate of 20 per cent.”

Know the rules

Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, can remit up to $250,000 in each financial year for any permissible current or capital account transaction, or a combination of both.

George Muthoot, director, Muthoot Pappachan Group says, “For customers whose children study abroad, LRS ensures a safe and efficient way of paying fees and meeting living expenses. Many also use it when they go abroad for medical treatment.”

Money beyond the $250,000 limit can be sent for reasons such as education and medical treatment by furnishing supporting documents.

Key channels

There are primarily three channels for remitting money abroad: banks; players like Thomas Cook, Western Union, and non-banking financial companies (NBFCs) like Muthoot Fincorp which have tied up with money transfer companies like Western Union, Moneygram, etc; and online platforms like bookmyforex, etc.

M Barve, MB Wealth Financial Solutions says, “When choosing the service provider, take into account trust, cost, and exchange rate. The choice should also depend on the amount being sent and frequency.”

Banks: High on trust

Banks let you send money abroad through wire transfers, net banking, and via foreign currency cheques and demand drafts.

Satheesh Krishnamurthy, executive vice president and head-private, premium banking and third-party products, Axis Bank, says, “Banks offer safety and security. The money is remitted through a network of overseas correspondent banks.”

For large sums, banks remain the preferred option.  

Customers can walk into the nearest branch or use the remittance facility provided on banks’ digital platforms. Banks such as Axis Bank also let customers remit money via the mobile phone.

Barve says, “Banks are a convenient option as the KYC requirement is lesser or already met.”

Pay heed to fee

The cost of remittance has three main components: transaction fee, exchange rate, and mark-up on forex rate.

While banks are trustworthy, they lag behind on cost. Private banks are usually more expensive than their public-sector peers. Banks generally levy a mark-up of 1-2 per cent on the exchange rate.

Online platforms and fintech players generally offer better rates than banks.

Some NBFCs’ fees depend on the destination, while others charge a flat fee. Muthoot says, “We provide competitive and real-time exchange rates.” They only charge a nominal processing fee.

Some players have entered into tie-ups. Guruprasad says, “Ebixcash has partnered with large payment aggregators such as Western Union Global Pay, Flywire, Pay2Study, etc for international business.”

Some players like Bookmyforex let customers freeze the exchange rate. Sudarshan Motwani, founder and chief executive officer, BookMyForex says, “This option allows you to book your order when you think the rate is favourable. You can fix the rate for three working days.” Customers have to pay 2 per cent of the order amount as a refundable rate guarantee deposit.  

Some players have made transparency on exchange rate their key selling proposition. Rashmi Satpute, country manager-India, Wise says, “While making the transfer you will be able to see the exchange rate. We use the mid-market exchange rate (the rate between the bid and ask rates) as seen on Reuters or Google with no markups or hidden fees. Globally, the average price of sending money abroad through Wise is 0.61 per cent.” When you send to a different currency, a small conversion fee is levied.

To know whether you are getting the correct rate, look up the interbank rate online for the currency pair you are interested in. Compare it with the exchange rate you are being offered to estimate the mark-up.

Some NBFCs claim to transfer the money within a day. Motwani says, “Money sent via online channels usually reaches its destination in 48-72 hours.”

Track the exchange rate

Keep an eye on the exchange rate. Barve says, “It changes frequently. Lock into it when it is on the lower side.” When large sums are involved, even a small gain on forex rate can make a significant difference.

While filling up remittance-related documents, provide accurate information to avoid problems vis-à-vis the Foreign Exchange Management Act (FEMA). If the remitter charges a transfer fee, check whether it is fixed or a percentage of the amount being transferred to understand the actual impact.

Also, find out the exact amount you need to pay to ensure a specific sum is received at the other end. In some cases, the entity at the other end may deduct charges, so the amount received may be lower than expected.

Finally, keep a record of all your transactions in case you need to follow up, and stick to reputable players to avoid frauds.

Cutting through the cost clutter

• Banks are costlier but enjoy a higher level of trust  
• Banks’ mark-up rates range from 1% and 2%, depending on customer’s account category and transaction size and type
• Many NFBCs and money transfer companies charge zero or nominal fee but make money from exchange mark-up
• Online platforms and fintech players are cheaper as they waive fee completely, or charge less than 1 per cent
• Each player has its own wording for fee structure, so do a detailed calculation to understand the full cost  

Transferring money to close relatives:

Documents required:

• A2-cum-LRS declaration form - Retail outward remittance application
• A photocopy of your PAN card
• Photo cum address proof of the remitter (Adhaar/Passport etc)
• Relationship proof (Passport/marriage certificate etc) which can establish the relation between remitter and the beneficiary

Overseas education

Documents required:

• A2 cum LRS declaration form - Retail outward remittance application
• A photocopy of your PAN card
• Photo cum address proof of the remitter(Adhaar/Passport etc)
• Admission letter given by the college or university abroad
• Student’s valid passport if the remitter is close relative of the student
• Other KYC documents if requested by the service provider

For traveling/booking your tour

Documents required:

• A2 cum LRS declaration form - Retail outward remittance application
• A copy of your PAN card
• A copy of your Visa
• A copy of your confirmed ticket
• A copy of your passport

Source: Bookmyforex.com