A non-resident Indian (NRI) is a person of Indian origin or a citizen of India who goes out from the country for some official purpose like employment, carrying out their own business or maybe with an intention to stay outside the country.

If you meet these criteria, then yes, you carry an NRI tag, but you can still make investments in India!

Most NRIs are in search of better investment opportunities and a majority of them have dependents in their home country. In such scenarios, making investments in India is inevitable for NRIs.

Mutual funds are the most sought after option for investments for most NRIs.

They realize the role mutual fund investments play in helping them achieve their future financial goals such as child’s education, marriage, retirement and so on.

So they have been showing tremendous interest in investing in Indian mutual funds.

However, a lot of questions come to their mind which remain unanswered.

Through this blog, I will try to answer some of the most frequently related mutual fund questions related to NRIs

Can NRIs Invest in Mutual Funds in India?

The very first question is that, are NRIs even allowed to invest in the Indian mutual fund industry?

Of course, an NRI can invest in mutual funds in India as long as he/she adheres to the Foreign Exchange Management Act (FEMA).

According to FEMA 1999, an NRI is a person:

  • a resident outside India who is either a citizen of India or a person of Indian origin (PIO).
  • who has been in India for 182 days or more during a financial year and 365 days or more during the preceding 4 financial years
  • a person who has been deputed overseas for 180 days or more

What Is the Procedure? 

Step 1: Set Up an Account

Mutual fund Asset Management Companies in India cannot accept investment in foreign currency.

So to start with, one has to open an NRE  or NR or a Foreign Currency Non-Resident (FCNR) account with an Indian bank.

Once the account is activated, an NRI can invest by any of the below methods.

A. Self or Direct

An NRI can carry out transactions, debiting or crediting through normal banking channels.

Their application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis.

KYC documents consist of a recent photograph, certified copies of PAN card, passport copy, residence proof of outside India, and a bank statement. The bank may require an in-person verification which an NRI can comply to, by visiting the Indian Embassy in their resident country.

B. Through the Power of Attorney (PoA)

Another common method is to have someone else invest on behalf of an NRI.

In India, Mutual fund companies allow holders to invest on their behalf and take other decisions pertaining to their investments.

However, signatures of both the NRI investor and PoA should be present on the KYC documents to make such types of investment.

Step 2: Get Your KYC done

An NRI must complete the KYC process before starting investment in Indian mutual funds.

For that, they need to submit a copy of your passport (only relevant pages with name), date of birth, photo and address. The current residential proof too is a must, whether temporary or permanent resident in that country.

Some fund houses may also insist on an in-person verification too.

Many mutual fund houses in India don’t allow NRIs from USA and Canada to invest in their schemes because of the cumbersome compliance requirements under the Foreign Account Tax Compliance Act (FATCA).

And then there are some fund houses which have certain conditions on which they allow investors based in USA and Canada to put money in their schemes.

So if you an NRI from USA or Canada, then look into the additional document requirement also.

For Example,

ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client

List of fund houses that accept investments from NRIs based in US and Canada:

Step 3: How to Redeem?

For NRIs, mutual fund investments can be redeemed by following the redemption procedure mentioned by the fund houses.

Different fund houses in India follow different procedures for redemption by NRIs.

The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes and shall be credited to the respective NRE or NRO bank account of the investor. They can also write a cheque for the same.

What About Taxation for NRIs?

Many NRI investors often fear that they will have to pay double tax when they invest in India, especially in mutual fund schemes.

But certainly, that’s not the case if India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country.

For Example,

India has signed a DTAA treaty with the US. Hence, an NRI can claim tax relief in the US, if he/she has already paid taxes in India.

The gains from equity oriented mutual funds are taxable based on the holding period.

These are the holding periods defined for different types of mutual funds:

 TypeShort-term holdingLong-term holding
Equity mutual fundsLess than 12 months12 months and more
Balanced mutual fundsLess than 12 months12 months and more
Debt mutual fundsLess than 36 months36 months and more

Below table summarizes the tax on the capital gain from mutual funds:

Capital Gain taxation on different types of mutual funds
TypeShort-term capital gains (STCG) taxLong-term capital gains (LTCG) tax
Equity-oriented mutual funds15%10% without Indexation
Balanced mutual funds15%10% without indexation
Debt-oriented mutual fundsAs per tax slab20% after Indexation

Points to be Noted for NRIs

  • If details of a foreign bank account is provided, the application of the NRI will be rejected.
  • On redemption of mutual fund units, the tax will be deducted at source on the capital gains made on the investment.
  • Your investment into mutual fund schemes carry the right of repatriation of the amount invested and amount earned, only until you remain an NRI.
  • The compliance requirement in USA and Canada are more stringent as compared to other nations. According to FATCA guidelines, all financial institutions must share the details of financial transactions involving a person from USA working with the US Government.
  • You must check if you are a resident of any of the 90 countries that have signed the Common Reporting Standard (CRS)? CRS is a global reporting system to combat tax evasion around the globe.

The Bottom Line

NRIs can easily choose to invest in the  Indian mutual fund industry although the process may have some initial hassles.

However, in the longer term, the return on investment would be worth it and there is certainly no reason for you to be left out of investing in one of the fastest growing economies of the world.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww