Things NRIs should keep in mind when investing in Mutual Funds

Before a few years, NRIs would only invest in fixed deposits and real estate. Since India is on its way to becoming a superpower in the world economy, NRIs have already started exploring other investment options in India, such as mutual funds, liquid funds, 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, their home country. The investment process is online, can be done at any time and from anywhere. Moreover, NRIs can easily offset the losses on one currency with the gains on the other, from the comfort of their home. As an NRI investor, you need to abide by certain limitations and rules for safe and profitable investment. Here are things NRIs should keep in mind when investing in mutual funds in India.   

Things NRIs should keep in mind when investing in Mutual Funds
Things NRIs should keep in mind when investing in Mutual Funds

Also Read: Mutual Funds for NRIs in Australia to Invest in India

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. 

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

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. 

Tax rules applicable for NRIs investing in mutual funds in India are as under:

Mutual fund typeShort-term investment durationLong-term investment durationShort-term Capital gains taxLong-term Capital gains tax
Equity FundLess than 1 yearEqual to or higher than 1 year15%10% without indexation
Hybrid FundLess than 1 yearEqual to or higher than 1 year15%10% without indexation
Debt FundLess than 3 yearsEqual to or higher than 3 yearsAs per your income tax bracket20% post indexation
Income tax applicable on capital gains from mutual funds

Conclusion

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. 

Also Read: Tax Slab for NRIs 2021-22: Everything about NRI Taxation

NRI Investment in Mutual Funds | Expert Advice

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. 

Ask Indian Friend Now

Copy link