NRI Mutual Fund

Mutual funds are one of the most preferred options for investment in India by NRIs. Investment in mutual funds enables non-resident Indians to invest in equity, debt or liquid funds. However, the investment procedure for NRIs is slightly different from that for resident Indians. Before investing in mutual funds in India, NRIs must know about the mutual fund schemes they can invest in, investment procedure, regulations and tax on capital gains. Here are the important details of the NRI mutual fund.

What are mutual funds?

Suppose there are four friends who want to buy a 12 piece box of chocolate priced at Rs.100/- but all of them have Rs.25/- only. They decide to pool their money and buy the box and then distribute 3 chocolates each based on their contribution.

This is a very basic model on which Mutual Funds operate. The box of chocolate here is the fund and chocolates are units. You buy certain units of the fund which has a Net-Asset Value (NAV). The value of this NAV changes with time based on the fund’s growth resulting in your gains.

Can NRI invest in Indian mutual funds?

Can NRIs invest in mutual funds in India is a common question. The simple answer is yes NRIs, as well as PIOs, can invest in Indian mutual funds provided they adhere to the regulations of the Foreign Exchange Management Act (FEMA).

NRIs can invest in mutual funds in India on repatriation as well as a non-repatriation basis. However, there are only a few asset management companies (AMCs) that accept mutual fund applications from NRIs in the USA and Canada. So, NRIs from these countries must check when investing in Indian mutual funds. 

NRIs are offered most of the benefits and conveniences as resident investors while investing. They can invest in equity funds, debt funds, or hybrid funds depending on their investment goals and risk tolerance. NRIs can repatriate the redemption proceeds as and when they wish to. 

Benefits of mutual funds for NRIs

India is one of the fastest growing major economies in the world, attracting staggering foreign investment. NRIs can also be a part of India’s growth and for non-resident individuals who have dependents in India, investment in mutual funds is an attractive proposition.

Here are some of the key benefits that NRI mutual fund investors can enjoy by investing in Indian mutual funds. 

Ease of investing and monitoring 

NRIs can invest in mutual funds and manage their portfolio online from the convenience of their home. NRI mutual fund investors can buy, redeem and switch units of different mutual fund schemes. They can also opt for systematic online transfers from one scheme to another and or withdraw online.     

You don’t have to issue cheques, DDs, submit physical forms, or be present in India. You will also receive consolidated account statements (CAS) regularly through emails. Mutual fund houses also disclose their portfolio holdings online every month to keep their investors informed.

How can NRI invest in Mutual Funds in India?

There are certain requirements based on the guidelines of FEMA for being an NRI for doing the same which are:

1. An NRE/NRO Bank Account: For an NRI, their funds can only be managed through the NRE or NRO Bank Accounts in India. Therefore, it is mandatory for an NRI to carry out investments in Mutual Fund using either of these accounts

2. Documentation: There is a set of documents that you must produce in order to invest in mutual funds in India. The following documents are needed for Know your Customer (KYC) of Mutual Funds for NRIs:

  • Completely filled and signed KYC Form
  • Identity Proof: Passport and PAN Card (Self-Attested)
  • Address Proof: Mandatory for NRIs. (Includes both correspondence and overseas address)
  • Cancelled Cheque of NRE/NRO Account

Now, NRIs can either invest in mutual funds online through direct transactions from their NRE/NRO Accounts or they can get a Power of Attorney (PoA) to invest money on their behalf. A thing to note here is that in case of a PoA, the signatures of both the NRI Investor and the PoA is required to be present on the KYC Documents. 

3. KYC/Attestation (In-Person Verification): The verification is done for NRIs by a certified entity for the acknowledgement of the fact that the investor has in his/her possession, all the original documents that he/she has mentioned in the KYC Form. It can be done by the following process:

  • The IPV can be done seamlessly on a video call (Skype, etc.). Earlier, NRIs were required to visit the offices or someone visited the investor to verify the papers at their home or workplace
  • You can set a time for the video call with the agencies and carry on with the IPV. Only the following entities have the authorization to carry out IPV:
  1. KYC registration agency (KRA) 
  2. The AMC (Asset Management Companies in India) Mutual fund agent 
  3. Mutual fund distributor or advisor 
  4. MF’s registrar transfer agent like CAMS or Karvy
  • Major agencies have their mobile apps now for instant authentication through biometrics or OTP
  • The video call might include questions about the details you have filled in the form and the application can be cancelled if any contradictions occur

NRI Mutual Fund investments are specific, every agency doesn’t allow investments from NRIs. Although, there are certain Mutual Fund Houses accepting payments from NRIs:

Which Indian Fund Houses Accept NRI Investments

Here is a list of Mutual Fund Houses that accept investments from NRIs: 

  • DHFL Pramerica Mutual Fund
  • Birla Sun Life Mutual Fund
  • ICICI Prudential Mutual Fund
  • HDFC Mutual Fund
  • SBI Mutual Fund
  • UTI Mutual Fund
  • L&T Mutual Fund
  • PPFAS Mutual Fund (Parag Parikh Financial Advisory Services)
  • Sundaram Mutual Fund

Taxation Rules for NRI Mutual Fund Investments

Taxation is a very crucial aspect in any asset class. The taxation on Mutual Funds is almost the same for NRIs and Residents. Different types of Mutual Funds are taxed differently for NRIs: 

*(Equity Funds: An equity fund is a mutual fund that invests principally in stocks)

*(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities etc.)

*(Minimum Holding Period: It is a stipulated period defined to differentiate the gains as long term and short term. Assets held for less than minimum holding period will be taxed on short term and assets held for more than the minimum holding period will be taxed on a long term basis)

Nature of Profits / Income

Equity Funds*Debt Funds*
Minimum Holding period* for Long term capital gains1 year

3 years

Short term capital gains taxation

15% + 4% cess* = 15.60%

As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab)

Long term capital gains taxation

10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)

(long term gains up to Rs 1 Lakh is tax-free) 

20% with indexation*