Investing in mutual funds in India offers NRIs an excellent opportunity to grow their wealth while staying connected to the Indian economy. With advancements in digital investment platforms, simplified compliance procedures, and evolving taxation laws, the process of NRI investment in mutual funds has become more accessible than ever. This guide provides a detailed step-by-step explanation of how NRIs can invest in mutual funds in India, ensuring even first-time investors find it easy to follow.
Eligibility Criteria for NRIs
NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India) are eligible to invest in Indian mutual funds, but they must comply with specific regulations. The eligibility criteria include:
- Residency Status: The individual must be an NRI as per the Foreign Exchange Management Act (FEMA) guidelines. NRIs from FATCA-compliant countries such as the USA and Canada have additional reporting requirements.
- Bank Account Requirement: NRIs can only invest using an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account.
- Source of Funds: The amount of NRI investment in mutual funds should come from an NRE or NRO account through legitimate banking channels.
- Permitted Mutual Fund Houses: While most Indian mutual fund houses accept NRI investments, some restrict investments from the USA and Canada due to FATCA compliance.
- Power of Attorney (PoA): If an NRI wants a family member in India to manage their investments, a PoA can be issued for facilitating NRI investment in mutual funds, ensuring seamless transactions.
KYC and FATCA Compliance Requirements
Before investing, NRIs must complete Know Your Customer (KYC) and Foreign Account Tax Compliance Act (FATCA) requirements:
KYC Process for NRI investment in mutual funds:
Documents Required
- Passport (self-attested copy)
- PAN Card (mandatory for tax purposes)
- Overseas Address Proof (utility bills, rental agreements, or bank statements)
- Indian Address Proof (if applicable)
- NRE/NRO Account Details
In-Person Verification (IPV): Many fund houses require IPV, which can now be completed via video KYC.
Re-KYC Updates: If an NRI’s address, bank details, or residency status changes, they must update their KYC to avoid investment disruptions.
FATCA Compliance:
- FATCA compliance is required for NRIs from the USA and Canada.
- Investors must submit a FATCA self-declaration stating their tax residency.
- Some mutual fund houses require NRIs to submit periodic tax declarations for continued compliance.
Choosing the Right Account Type: NRE vs. NRO
Choosing the right bank account is crucial for repatriation and taxation purposes:
- NRE (Non-Resident External) Account:
- Ideal for NRIs earning income abroad.
- Investment is fully repatriable (principal + returns can be transferred abroad).
- Tax-free in India.
- NRO (Non-Resident Ordinary) Account:
- Suitable for NRIs earning income in India (rent, dividends, etc.).
- Interest and investment gains are taxable in India.
- Repatriation of funds is subject to a $1 million per year limit.
- Ideal for NRIs looking to reinvest local earnings in mutual funds.
Read more: NRI Accounts: Which one to choose? NRE or NRO?
Selecting Mutual Funds That Align with Your Goals
NRIs have access to a wide range of mutual funds in India. Choosing the right one depends on investment goals, risk appetite, and market trends.
Popular Mutual Fund Categories for NRIs:
- Equity Mutual Funds (High-Risk, High Returns): Best for long-term wealth creation.
- Debt Mutual Funds (Low-Risk, Stable Returns): Ideal for NRIs seeking fixed-income investments.
- Hybrid Funds (Balanced Risk): A mix of equity and debt for moderate risk-takers.
- Index Funds & ETFs: Passive investments that track stock market indices.
- ESG (Environmental, Social, and Governance) Funds: A rising trend in 2025, these funds focus on sustainable investments.
- Sectoral and Thematic Funds are gaining popularity among NRIs interested in specific industries like technology and healthcare.
- International Fund of Funds allow NRIs to invest in global markets through Indian fund houses.
- AI-driven mutual funds are emerging, leveraging machine learning to optimize portfolio performance.
Also read: Best Indian Mutual Funds to invest in 2025: Large-Cap, Flexi-Cap, Multi-Asset & SIP Funds
Step-by-Step Investment Process for NRIs
- Choose a SEBI-Registered Mutual Fund Platform: Opt for an NRI-friendly platform like SBNRI.
- Complete KYC & FATCA: Submit necessary documents online or via video KYC.
- Select Mutual Fund Type: Equity, debt, or hybrid based on financial goals.
- Open an NRE/NRO Account: Link it with the mutual fund.
- Fund Your Investment: Use net banking, remittance, or an NRE/NRO cheque.
- Monitor and Adjust Portfolio: Review performance periodically.
- Stay Updated on Taxation & Compliance: Keep an eye on regulatory changes affecting NRIs.
Looking to Invest your Disposable Income in Indian Markets as NRI/OCI?
You can also get detailed investment advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs/OCIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
FAQs
Can NRIs directly invest in mutual funds?
Yes, NRIs can invest in Indian mutual funds directly through NRE/NRO accounts. They must complete KYC and FATCA formalities before investing.
Which mutual fund is best for NRIs?
The best mutual fund depends on financial goals. Popular choices include Nippon India Large Cap Fund, ICICI Prudential Bluechip Fund, and Parag Parikh Flexi Cap Fund for long-term growth.
Can NRIs invest in SBI mutual funds in India?
Yes, NRIs can invest in SBI Mutual Funds, but those from the USA and Canada may have additional compliance requirements due to FATCA regulations.
Is mutual fund investment tax-free for NRIs?
No, NRIs are subject to TDS on capital gains. Equity funds are taxed at 10% on LTCG above ₹1 lakh, while debt funds have a 20% LTCG tax with indexation benefits.
How to start SIP investment for NRIs?
NRIs can start an SIP by choosing a mutual fund, linking their NRE/NRO account, completing KYC & FATCA, and setting up automated monthly investments through an NRI-friendly platform.
Can an NRI invest in mutual funds without an NRO/NRE account?
No, an NRI must use an NRO or NRE account for investment purposes.
How is mutual fund taxation different for NRIs?
NRIs are subject to TDS on capital gains, unlike resident Indians who file tax separately.
Can NRIs repatriate mutual fund earnings freely?
Only investments via NRE accounts are fully repatriable, while NRO accounts have a $1 million per year limit.
Do NRIs need to file ITR in India for mutual fund investments?
Yes, especially if they have taxable income in India.
How does DTAA benefit NRIs?
It helps NRIs avoid double taxation by claiming tax relief.
