What Happens to Mutual Funds When You Become NRI?

It is common that Indians move abroad for jobs or education, and attain NRI status after spending a few months outside India during a financial year. Many people invest in different financial avenues in India, such as fixed deposits, mutual funds, stocks, etc. before leaving India. Then get confused about what to do with their investments in India. For example, one of the common queries that we receive is what happens to mutual funds when you become an NRI?

What Happens to Mutual Funds When You Become an NRI?

Once your residential status changes to an NRI (Non-Resident Indian), you can continue with your investments in domestic mutual funds. However, according to FEMA rules, you need to change your residential status in your bank accounts and other investments like mutual fund schemes. While there is no restriction on NRI investment in mutual funds in India, you must update your residential status and bank account details. 

What Happens to Mutual Funds When You Become NRI?

What you Need to Do on Becoming an NRI?

As there are different taxation rules for NRIs and resident Indians, you can’t continue to invest like an ordinary resident investor. Here are the formalities you need to complete within the specified period:

Update your Residential Status

On becoming an NRI, you need to update your status from a ‘resident’ to an ‘NRI’ in the KYC records. You have to inform the mutual fund house where your investment is held. Since KYC details are centralized, the KYC information updated with one AMC would reflect across all mutual fund investments. 

You need to file and submit a KYC form for changes in KYC status along with copies of PAN, passport, and local and foreign address proof. Here is the complete process of mutual fund KYC for NRIs

You can approach an intermediary, like SBNRI, to get your KYC records updated without visiting India. It is important to note that you can make changes only after you become an NRI as per the Income Tax Act. Thus, you can’t complete the process before leaving India as a resident.

NRIs willing to invest in mutual funds in India can download SBNRI App to choose from 3000+ mutual fund schemes or to ask any questions related to mutual fund investment.

SBNRI is an authorised Mutual Fund Distributor platform & registered with Association of Mutual Funds in India (AMFI). ARN No. 246671

Open an NRI Bank Account

As per the FEMA (Foreign Exchange Management Act) guidelines, individuals can’t continue with their regular account after their residential status changes to an NRI. Moreover, asset management companies (AMCs) in India are not allowed to accept investment in a foreign currency. Hence, it is mandatory to open an NRE bank account or convert your regular account into an NRO account.    

An NRE (Non-Resident External) bank account allows NRIs to park their foreign earnings in an RBI-registered bank in India. Whereas an NRO account can be opened by NRIs to deposit their Indian earnings, such as pension, dividends, rental income, etc. So, an NRI investor can open an NRE account to invest their foreign earnings in mutual funds and other instruments in India, or use an NRO account for investing their Indian income. 

You need to submit a copy of PAN, your foreign address proof, NRI status proof, such as your visa or work permit on your passport, etc. to open an NRI bank account. 

Once your NRE/ NRO account is opened, inform the mutual fund house with which you hold the investment. Consequently, this bank account will be considered for all debits and credits of your redemption amounts.  

Additional Requirements for those Relocating to the US or Canada

While NRIs living in other countries can easily invest in mutual funds in India, there are additional compliance requirements for investors based out of the US and Canada under the FATCA (Foreign Account Tax Compliance Act) guidelines. Only a few fund houses accept mutual fund investments from NRIs based out of the USA/ Canada, including Nippon India Mutual Funds, UTI Mutual Fund, Navi Mutual Fund, PPFAS Mutual Fund, Axis Mutual Fund, etc. NRIs based in these countries need to submit an additional FATCA declaration form to the mutual fund house that accepts investment.  

Tax implications of NRI Investment in Mutual Funds in India

Capital gains from mutual fund investments in India are subject to income tax for NRI investors

Fund TypeShort-term Capital Gains (STCG) TaxLong-term Capital Gains (STCG) Tax
Equity mutual funds15%10% without indexation benefits
Debt & other types of funds At tax slab rate20% with indexation benefits

Before investing in the Indian market, NRIs must consult market experts to make informed decisions. You can get detailed mutual fund advisory from experts at SBNRI. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to mutual fund investment, NRI account opening online and tax filing in India. To ask any questions related to Mutual Funds, click on the button below. Also visit our blog and YouTube channel for more details. 

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What happens if an NRI invests in Mutual Funds in India as an ordinary resident?

After becoming an NRI, investing in mutual funds in India with residential status is a violation of FEMA Act.  

Does an NRI need a PIS certificate to invest in mutual funds?

No NRIs don’t need a PIS certificate to invest in mutual funds in India. NRIs can invest in India Rupee from a non-PIS NRE or NRO account. 

Can NRI invest in a mutual fund tax saving scheme?

Yes. NRIs are allowed to invest in mutual funds, including tax savings or ELSS schemes on repatriation or non-repatriation basis. 

Can NRI continue with mutual funds?

Yes you can continue with your investment. All you need to do is update your status from a resident to NRI. As an NRI, you have to adhere to the Foreign Exchange Management Act (FEMA) to invest in mutual funds in India. 

What happens to SIP when you become NRI?

Just like the resident Indians, NRIs can also invest in Indian mutual fund SIP schemes. NRIs are not required to seek special permission from the RBI to invest in mutual funds SIP schemes. 

Do NRI need a Demat account for mutual funds?

NRIs can invest in mutual funds with a PAN card and NRE or NRO account. However, they need to complete KYC once again even if they have already done it as a resident before attaining the NRI status. 

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