NRI Mutual Fund: The Basic 2024 Guide

NRI Mutual Fund: The Basic 2024 Guide

In recent years,  Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) have increasingly shown interest in investing in the Indian financial market, and one of the popular investment avenues is mutual funds. Mutual funds offer NRIs a diversified and professionally managed way to grow their wealth. If you’re an NRI looking to invest in mutual funds in 2024, this guide will provide you with essential information to get started.

What is a Mutual Fund?

Mutual Fund is a type of investment vehicle that pools the investments from various investors and invests in common investment objectives like equities, bonds, money market instruments, securities, and more. Mutual funds are managed by fund managers who have expertise in making investment decisions on behalf of the investors to generate better returns and grow wealth for the investors. 

Also read: 10 Mutual Funds That Doubled Wealth In 5 Years

Can NRI invest in Mutual Funds in India?

The very first doubt seeded in an NRI brain is whether he/she can invest in mutual funds in India after becoming an NRI? To answer that, YES! NRIs can 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: Having an NRE/NRO Bank Account is the first step in investing in mutual funds in India. Given below is a basic overview of these accounts for you to get a better understanding:
Factors to considerNon Resident External (NRE)Non Resident Ordinary (NRO)
PurposeFor income earned outside IndiaFor income earned from India (pension, rent etc.) 
Joint Account HoldingOnly NRIBoth NRI and Residents
Tenure of Deposits1 year to 10 years7 days to 10 years
InterestUp to 7.81%*Up to 7.30%*
Repatriation(transfer of money from Indian bank account to foreign bank account) Both Principal (money invested initially) and Interest completely repatriableUp to a maximum of 1 million USD per financial year
Tax DeductionsNo taxTax on Interest earned (not on principal amount): 30% tax + surcharge + education cess will be deducted at the source of interest earned in India
Overview of NRI Accounts
  1. 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
Open NRI account in India easily

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.

  1. KYC/ In-Person Verification (IPV): Online Mutual Fund KYC for NRIs is a seamless online process through which NRIs can easily complete their KYC requirements for Mutual Funds by submitting the documents online and verifying them through In Person Verification (IPV).  
  • In Person Verification Process: 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:
  • KYC registration agency (KRA) 
  • The AMC (Asset Management Companies in India) Mutual fund agent 
  • Mutual fund distributor or advisor 
  • 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 Investment: All you need to know

Also read: Best Mutual Funds for NRI in India 2024

Which Indian Fund Houses Accept NRI Investments

NRI Mutual Fund investments are specific, every agency doesn’t allow investments from NRIs. Here is a list of Mutual Fund Houses that accept investments from NRIs: 

Mutual Funds for NRIs from USA/ Canada

While NRIs from other countries can easily invest in mutual funds in India, there are certain restrictions when it comes to offering mutual funds for NRIs from USA/ Canada. Currently, the following AMCs offer mutual funds for NRIs from USA and Canada:

  • Nippon India Mutual Fund
  • UTI Mutual Fund
  • Navi Mutual Fund
  • Quant Mutual Fund
  • Aditya Birla Sun Life Mutual Fund
  • Sundaram Mutual Funds
Investing in Indian Mutual Funds: US Residents

Taxation Rules for NRI Mutual Fund Investments

The profits or returns generated from investing in mutual funds are known as Capital Gains. These capital gains are then subject to taxation for investors.

Factors that affect the Mutual Fund Taxation

Following are the factors that affect the mutual fund taxation for NRIs:

  • Types of Funds: The taxation rules vary based on the category of mutual funds, such as Equity Mutual Fund, Debt Mutual Fund, Hybrid Mutual Fund, etc.
  • Dividends: Dividends represent a portion of the profits distributed among investors by mutual fund houses.
  • Capital Gains: The term ‘capital gains’ refers to the profits generated when investors sell their capital assets at a higher price than the total investment amount.
  • Holding Period: The duration between the purchase and sale of mutual fund units is termed the holding period. The holding period determines Short Term Capital Gain(STCG) or Long Term Capital Gain (LTCG). Basis that, the applicable tax rates are levied on the gains.

Equity Mutual Funds Taxation for NRI

In the case of equity mutual funds, any holding of less than one year will be termed as short-term, and selling of such investment will carry a short-term capital gain (STCG) of 15%. Similarly, for equity mutual fund investments held for more than a year, long-term capital gains (LTCG) up to 1 lakh per year will be exempt. Any LTCG above Rs 1 lakh will be levied at 10% without any indexation benefit.

Also read: Best SIP to Invest in 2024 – Top 10 SIP Mutual Fund Plans for NRIs/OCIs

Debt Mutual Fund Taxation for NRI

The debt mutual fund tax has been changed with effect from April 1, 2023, after the Budget 2023 brought certain amendments. Debt mutual funds will no longer be allowed to avail of indexation benefits from FY 23-24. Any gains made on debt mutual funds investment will now attract taxation on applicable slab rates of the investor’s income bracket.

How does new taxation on Debt Mutual Funds work?

Let’s take the following example for clarification and compare the old taxation vis-à-vis new taxation.

Example: Mr Anurag invested Rs 15,00,000 in FY 2017-18 in debt mutual funds. He sold the same after holding it for three years in FY 22-23. Here’s a comparison of his taxation pre-amendment and new rules.

Sale Price25,00,000
Investment Amount15,00,000
Indexed cost of Investment (Investment*331/272)18,25,368 (rounded off)
Long-term capital gain (Sale Price – Indexed Cost of Investment)Note: CII for 2017-18 was 272 and CII for 2022-23 was 3316,74,632
LTCG payable @20%1,34,927

Now let’s take a present-day case for comparison:

Example: Mr Anurag invested Rs 25,00,000 in debt mutual funds in FY 23-24 and sold the same in FY 27-28 for Rs 37,00,000. Basis new mutual fund taxation 2024, here’s how it will taxed:

Sale Price37,00,000
Investment Amount25,00,000
Capital gain (Sale Price – Cost of Investment)12,00,000

Note: Your capital gains will be part of your income for the said FY when you sell the debt mutual fund and accumulate the capital gains. This will then be taxed as per your income slab rates for the year.

Also read: Best NRI Investments in India: Top 10 Investment Options for NRIs/OCIs in India 2024

Hybrid Mutual Funds Taxation for NRIs

The taxation rate for capital gains on hybrid or balanced funds depends on the equity exposure within the portfolio. Should the equity exposure surpass 65%, the fund scheme is subject to taxation similar to an equity fund; otherwise, the taxation rules applicable to debt funds come into play. Here’s a brief of these:

  • Hybrid Equity-Oriented Mutual Fund Taxation: In the case of hybrid equity oriented mutual funds, any holding of less than one year will be termed as short-term, and selling of such investment will carry a short-term capital gain (STCG) of 15%. Similarly, for equity mutual fund investments held for more than a year, long-term capital gains (LTCG) up to 1 lakh per year will be exempt. Any LTCG above Rs 1 lakh will be levied at 10% without any indexation benefit.
  • Hybrid Debt-Oriented Mutual Fund Taxation: After the Budget 2023 amendments, long-term capital gains in debt funds won’t enjoy any indexation benefit and will be charged as per the investor’s slab rates removing the LTCG benefits altogether. As such any gains arised from debt funds will now attract taxation on applicable slab rates of the investor’s income bracket.

Taxation on Dividends from Mutual Fund for NRIs

Dividends received by investors are now added to the investors taxable income and taxed at their respective income tax slab rates. Previously, the dividends were tax-free in the hands o the investors as companies would deduct the dividend distribution tax (DDT) beforehand paying the dividend to the investors. This change came in effect after the Union Budget 2020 announcement.

Securities Transaction Tax (STT) on Mutual Funds for NRIs

Securities Transaction Tax (STT) is a charge levied by the govt when an investor sells or buys any units in an equity fund or hybrid equity-oriented funds. The rate for STT is 0.001%. However, do note that there is no STT for sale of any debt mutual fund or debt-oriented funds.

DTAA Benefit on NRI Mutual Fund Investments

DTAA (Double Tax Avoidance Agreement) is a treaty between countries to avoid paying double taxes. If you have already paid the taxes in India then you don’t need to pay taxes in your country of residence. There can be a difference in tax slabs though. Under such conditions, you pay the residual taxes in your country of residence. For example: If you had to pay 20% tax in the USA and the same income has been taxed at 15% in India in form of TDS defined under DTAA with USA, then you have to pay the remaining 5% tax in USA. Also, people generating income from countries in the Gulf region where no income taxes are applicable, don’t have to pay any taxes in India.

There are various documents required to avail the benefits under DTAA, which are:

  • Self-declaration cum indemnity format 
  • Self-attested PAN card copy 
  • Self-attested visa and passport copy 
  • PIO proof copy (if applicable) 
  • Tax Residency Certificate (TRC) 

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

Note: According to the Finance Act 2013, an individual will not be entitled to claim any benefit of relief under Double Taxation Avoidance Agreement unless he or she provides a Tax Residency Certificate to the deductor. To receive a Tax Residency Certificate, an application has to be made in Form 10FA (Application for Certificate of residence for the purposes of an agreement under section 90 and 90A of the Income-tax Act, 1961) to the income tax authorities. Once the application is successfully processed, the certificate will be issued in Form 10FB.

Benefits of Investing in the Mutual Funds

Mutual funds offer several benefits to investors, making them a popular investment choice for individuals with varying financial goals and risk tolerance levels. Here are some key advantages of investing in mutual funds:

  • Diversification: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. This diversification helps spread risk, reducing the impact of poor performance in a single investment.
  • Professional Management: Mutual funds are managed by experienced and knowledgeable fund managers who make investment decisions on behalf of investors. These professionals conduct research and analysis to select the best securities for the fund’s portfolio.
  • Liquidity: Mutual fund units are typically bought and sold at the end-of-day net asset value (NAV) price. This provides investors with liquidity, allowing them to easily access their investments and convert them into cash when needed.
  • Affordability and flexibility: Mutual funds allow investors to participate in a diversified portfolio with relatively small amounts of money. Many funds have low minimum investment requirements, making them accessible to a wide range of investors.
  • Risk Management: Depending on the type of mutual fund, investors can choose funds that align with their risk tolerance. Conservative investors can opt for bond funds, while those seeking higher returns with higher risk can choose equity funds. There are also balanced funds that offer a mix of asset classes.
  • Tax Benefits: Some mutual funds, such as Equity-Linked Savings Schemes (ELSS), offer tax benefits under Section 80C of the Income Tax Act in India. Additionally, capital gains from mutual funds may be taxed at a lower rate compared to individual stocks for long-term investments in some countries.

Top 5 tips for NRI Mutual Fund Investment

  1. Define Goals and Risk Tolerance: Identify your investment goals, be it wealth building, retirement planning, or property acquisition. Clear objectives and understanding your risk tolerance are fundamental for informed investment decisions.
  2. Choose Wisely Among Types: Navigate the diverse mutual fund landscape by selecting the right type that aligns with your preferences and financial goals. Consult with wealth experts for tailored advice on growth, bond, ESG, or sectoral funds.
  3. Mind the Expense Ratio: Comprehend the expense ratio, a critical factor in NRI mutual fund investments. Opt for funds with an expense ratio below 1% to ensure cost efficiency and significant savings over the investment period.
  4. Active vs. Passive Management: Decide between actively managed funds with dynamic decision-making and passively managed (index) funds known for lower costs. Align your choice with risk tolerance and investment goals.
  5. Evaluate Past Performance and Fund Manager: Prioritize mutual funds with consistent past performance and assess the efficiency of the fund manager. A skilled manager can strategically allocate funds for maximum gains. Thoroughly examine the fund prospectus for insights into potential returns and managerial proficiency.

Wrapping Up

Investing in mutual funds as an NRI in 2024 is a viable option for wealth creation and portfolio diversification. By understanding the basics, adhering to regulatory requirements, and making informed investment decisions, NRIs can navigate the Indian mutual fund landscape successfully. Always consult with financial advisors and conduct thorough research before making investment decisions to align your portfolio with your financial goals and risk tolerance.

Invest in NRI Mutual Funds with SBNRI

NRIs can now download the SBNRI App and choose to invest in different NRI mutual fund schemes in India with ease. You can also get detailed mutual fund 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 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.

Best Debt Mutual Funds in India 2024 for Residents and NRIs/OCIs

List of Top Performing Liquid Funds for NRIs in 2024

What are Sector Funds? Best Sector Funds List for NRIs

Investing in ESG Mutual Funds? Read this before you make a move


Can NRI invest in mutual funds in India?

  • Yes. NRI can invest in mutual funds in India using their NRE/NRO bank account once they complete their Mutual Fund KYC.

How can NRI buy mutual funds in India?

  • NRI investors can purchase or sell mutual funds in India once they complete their Mutual Fund KYC and have an operating NRO/NRE Bank account. 

Are equity mutual funds safer for NRIs?

  • Equity mutual funds have a high volatility and can be a risky investment for investors. However, overseeing the returns generated by equity mutual funds for the past 15 years, these funds can be a great investment vehicle and offer great wealth-generation opportunities for NRIs.

Is equity funds safer than FD?

  • Fixed deposits have a risk-free fixed income and are safer than equity mutual funds. However, as per the returns and growth opportunity, equity mutual funds look to be a better investment option for investors, residents, and NRIs alike. 

Can I invest from the USA in India?

  • Yes an NRI can invest from the USA in India in various asset classes such as FDs, Mutual Funds, Stocks etc.

Can NRI invest in SIP in India?

  • Yes, an NRI can invest in India through the SIP route. SIP stands for Systematic Investment Plan.

What are the investment options for NRIs in India?

  • There are a plethora of investment options for NRIs in India. The top 5 investment options for NRIs include Fixed Deposits, Mutual Funds, Stocks, Real Estate and GOI Securities.

Why do I need to get the NRI Mutual Fund KYC done?

  • Investing in mutual funds as an NRI requires a legally compliant KYC and adherence to the rules and regulations of SEBI, RBI, and FEMA. KYC acts as a legal validation of your current residential and tax status and allows you to invest in mutual fund schemes without any hassle. 

What if my residential status is changed from Resident to NRI?

  • When your residential status is changed from resident to NRI, you need to update your KYC to change the records to continue investing in the mutual fund schemes in India. It is advised to change the status to avoid any hassle during the redemption process and may face penalties for the same. 

What is Debt funds vs. Equity Funds?

  • Debt funds are mutual funds that invest money into fixed-income securities, corporate bonds, treasury bills, commercial papers, and more. On the other hand equity funds invest the money into stocks/shares of the company.
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