Before a few years, NRIs would only invest in fixed deposits and real estate. However, now NRIs have started exploring other investment options in India, such as mutual funds, PMS, direct equity, bonds and government securities, etc. Investing in mutual funds gives NRIs opportunities to build a diversified portfolio of equity and debt in India. NRI investors need to abide by certain rules for safe and profitable investment in mutual funds. Here are things NRIs should keep in mind when investing in mutual funds in India.
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Can NRIs Invest in Mutual Funds in India?
Yes, NRIs can invest in mutual funds in India. They can take advantage of investment opportunities in the Indian mutual fund market by following certain guidelines and regulations. To invest in mutual funds, NRIs generally need to have an NRE or NRO account, which helps in managing the investments and repatriation of funds.
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Things NRIs Should Keep in Mind When Investing in Mutual Funds in India
Here are the factors NRIs should consider to invest in mutual funds in India:
1. Ensure if you qualify to be an NRI as per FEMA notification, 3 May 2000
You need to meet the following criteria to be classified as an NRI as per FEMA (Foreign Exchange Management Act):
- An Indian citizen residing abroad.
- You need to stay in India for less than 120 days in a financial year. The 120-day condition will apply only if your taxable income from sources in India is more than Rs. 15 lakh in a financial year.
- If your income in India is less than Rs. 15 lakh, then you can stay in India for up to 181 days in a financial year without affecting your NRI status for taxation purposes.
- Refer new Rules for NRI Taxation in India for FY-2023-24.
2. Mutual funds for NRIs: Investment procedure
Here are the steps you need to follow for investing in NRI mutual funds in India.
- Open an NRE/ NRO account: NRIs need to open an NRE (Non-Resident External) account or NRO (Non-Resident Ordinary) account with an Indian bank to invest in a mutual fund in India. An NRE account can be opened to deposit your foreign earnings in Indian currency, whereas an NRO account can be used to manage your income earned in India, such as pension, dividends, rental income, etc.
This is an essential step because AMCs (Asset Management Companies) in India don’t accept foreign currency investments. Once you start investing in a mutual fund scheme through an NRE or NRO account, you can use only this account type for investment in that scheme. A mix of investment sources is not permitted.
- KYC Compliance: To invest in mutual funds in India, you have to complete KYC formalities. You need to submit the following documents for KYC compliance:
- Your passport-sized photographs
- Self-attested copies of your passport (only relevant pages as specified by the fund house)
- Address proof and birth certificate
Get your documents attested by any of the following authorities in your country of residence: an authorized official of overseas branches of a scheduled commercial bank registered with the RBI, court magistrate/ judge, Public Notary, or the Indian Embassy/ Consulate abroad.
Employees of Merchant Navy need to submit a mariner’s declaration or certified copy of the Continuous Discharge Certificate.
- In-person verification: IPV or in-person verification is mandatory for investment in mutual funds for NRIs. If the concerned fund house asks for an in-person verification, then you may have to visit the Indian Embassy in the country of your residence. If allowed by the concerned fund house, you can connect to the official representative of the AMC via video conferencing.
- Investment mode: You can start investing in mutual funds online or through an appointed Power of Attorney (PoA) in India.
- Qualifiers: Please note that many AMCs don’t allow NRIs from the USA and Canada to invest in mutual funds in India due to cumbersome compliance procedures set under FATCA (Foreign Account Tax Compliance Act). Some fund houses offer mutual funds for NRIs from USA/Canada to invest in India, such as Sundaram Mutual Funds, Reliance Mutual Fund, L&T Mutual Fund, etc. but require additional documentation and eligibility criteria.
3. Understand Tax Implications
Capital gain tax
Gains from mutual funds investment are subject to income tax for NRI investors.
|Funds||Short-term capital gain (STCG) tax||Long-term capital gain (STCG) tax|
|Equity Fund||15%||10% without indexation benefits|
|Debt-oriented funds||As per tax slab||20% with indexation benefits|
Mutual fund investments made by NRIs are subject to TDS deduction in India. TDS will be deducted from your LTCG at 20% for debt and other non-equity funds.
Relief From Double Taxation
India has signed a Double Tax Avoidance Agreement (DTAA) with more than 90 countries worldwide. Under the DTAA, NRIs who have already paid taxes on their fund gains in India won’t have to pay tax for the same in the country they reside in. This will minimize tax liabilities for Indian citizens living in these countries.
Mutual funds not only offer good returns but also various other key benefits like forex gains, easy online investment options and tax exemptions in India. Hence, you can invest in mutual funds in your motherland and enjoy a wide range of benefits. This way you can contribute to the rapidly growing Indian economy. Some of the best mutual funds for NRIs include HDFC Mutual Funds, ICICI Prudential NRI Mutual Funds, SBI NRI Mutual Funds, UTI Mutual Funds for NRIs, and many more.
Before investing in 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.