Things to Consider For NRIs Who Want to Invest in Mutual Funds in India

A few years back, NRIs were known to invest only in real estate or fixed deposits. However, with the rise of India’s stature in the world economy, things have changed and NRI investment in mutual fund has picked up as a trend. Mutual fund investments are one of the best investment options for NRIs since it gives them the scope to diversify their portfolio of equity and debt in their homeland. The investment process is easy and can be done from any part of the world as it is online. One of the biggest advantages for an NRI to invest in mutual funds is that he/she can easily offset the losses on one currency with gains on another. So, let’s see what are the things to consider for NRIs who want to invest in Mutual Funds in India.

Things to Consider For NRIs Who Want to Invest in Mutual Funds in India
Things to Consider For NRIs Who Want to Invest in Mutual Funds in India

Factors to Consider While Investing in Mutual Funds

Do You Qualify as an NRI?

An individual who wishes to invest in mutual funds as an NRI has to meet the following criteria as per FEMA (Foreign Exchange Management Act).

  • Has to be an Indian citizen residing abroad.
  • The individual has to stay for less than 120 days in a financial year within India. Moreover, the 120-day condition applies only if the concerned individual’s taxable income exceeds Rs 15 lakh in a single financial year.
  • Individuals whose taxable income is less than Rs 15 lakh can stay in India for up to 181 days in a financial year and still hold the status of an NRI for taxation purposes.

Procedure of Investment

Step 1: Open an NRE/NRO Account

An NRE (Non-Resident External) account or an NRO (Non-Resident Ordinary) account is the type of account that an NRI must open in an Indian Bank if he wishes to invest in mutual funds. An NRE account is meant to deposit foreign earnings in Indian currency, while an NRO account is meant to deposit your income earned within India. It may include pension, rental income, dividends, etc.

Having an NRE or NRO account is compulsory since any Asset Management Company within India will not accept foreign currency investments.

Step 2: KYC Compliance

One has to complete KYC formalities and submit the necessary documents to invest in mutual funds in India. These documents include:

  • Passport-sized photographs of the applicant.
  • Self-attested copies of the passport.
  • Address proof and birth certificate.

You must get these documents attested by the relevant authorities in your residing country. The authorities must either be a court magistrate/ judge, an Indian Embassy/ Consulate abroad, an authorized official from an overseas branch of a scheduled commercial bank registered with RBI, or a Public Notary.

Know The Tax Implications

Every mutual fund investor must know that India has signed a Double Tax Avoidance Agreement (DTAA) with over 90 countries. Under the agreement, NRIs who have paid their share of tax for mutual funds in India do not have to pay tax for the same fund gains in their residing country. The DTAA is a great step for NRIs as it has minimized their tax liabilities in their residing country.

If an NRIs investment in mutual funds is held for less than 12 months of a financial year, then the capital gains from such investments are considered short-term capital gains. The short-term capital gains are taxed at only 15% and are also subject to TDS (Tax Deduction at Source) which is deducted at the source of income, and the same rate.

Mutual funds are a risky, but highly lucrative form of investment that offers NRIs great returns among various other benefits that include forex gains, tax exemptions, and easy online investment options in India. So, nothing is stopping you now from investing your money in your motherland and reaping a multitude of benefits. What’s even better? You are contributing to India’s growing economy while enjoying excellent returns on your investments.

There are different types of investment options in India for NRIs; risk, reward, and return vary from one another. Because of confusion and additional regulations for NRIs and OCIs, NRIs living away from India may face several challenges. At SBNRI, we understand this struggle. You can download SBNRI App to get assistance with investment for a smooth procedure.

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