NRI Mutual Fund: The Basic 2023 Guide

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. NRI Mutual Fund is a very sought after investment vehicle in India and under this asset class, NRIs face a lot of difficulties. In this article, we will tackle these difficulties one by one.

In this article:

NRI Mutual Fund: The Basic 2023 Guide
NRI Mutual Fund: The Basic 2023 Guide

NRIs living anywhere in the world can download SBNRI App to choose from 100+ mutual fund schemes in India or to ask any questions related to mutual fund investment in India.

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

Also Read: How NRI invest in India: Mutual Funds

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

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

NRIs living in the US and Canada can download SBNRI App to choose from 3000+ mutual fund schemes in India 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

NRI Mutual Fund investments are specific, every agency doesn’t allow investments from NRIs. Let’s explore the 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: 

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 Funds
  • UTI Mutual Fund
  • Navi Mutual Fund
  • PPFAS Mutual Fund
  • Axis Mutual Fund
  • Aditya Birla Sun Life Mutual Fund
  • SBI Mutual Fund
  • ICICI Prudential Mutual Fund

Investing in Indian Mutual Funds: US Residents
Investing in Indian Mutual Funds: UAE Residents

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 / IncomeEquity Funds*Debt Funds*
Minimum Holding period* for Long term capital gains1 year3 years
Short term capital gains taxation15% + 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 taxation10% + 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*
Taxation on Mutual Fund for NRI

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.

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