Why NRI Should Invest in Mutual Funds in India

27 February 2023
5 min read
Why NRI Should Invest in Mutual Funds in India
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Any enterprising person is always looking for investments that give high returns with minimal risk. But, of course, higher returns come with higher risk. But even in the same risk category, there are better-performing investments. Investing in mutual funds in India is one such investment.

6 Reasons Why NRI Should Invest in Mutual Funds in India

There are several reasons why mutual funds are ideal investments for most NRI. The following are a few reasons:

1. Indian Growth

A young, English-speaking population and a reformative government are some factors that have allowed India to become the fastest-growing major economy.

India has what’s known as a demographic gift. Half of India’s population is under the age of 25. This presents India with an opportunity China had for a few decades. Then, China’s young population allowed it to become the world's factory. Now, China’s population is aging. As a result, all eyes are gradually moving toward India.

An advantage India has over China is an English-speaking population. This has caused various large companies to set up shops in India. As a result, they get cheap labor that is easy to communicate.

Demonetisation, Goods and Services Tax (GST), Foreign Direct Investment (FDI), and reduction in paperwork involved in various stages of registering a business – the government has been very proactive in improving the ease of doing business in India.

These and various other factors have all contributed to India becoming the fastest-growing major economy in the world.

2. Better Investment Option

Mutual funds have been performing spectacularly in recent times. They also allow you to start investing in tiny amounts.

NRI used to invest in the real estate market of India very heavily. However, the real estate market has not been performing very well lately. There is a surplus of houses. The price buyers are willing to pay much lower than what the places are listed. Once considered a safe and high returns investment, real estate has shown significantly reduced growth, especially since 2011.

Gold, another favorite of Indians within India or abroad, has stagnated and shown negative growth in the past few years.

Mutual funds, in that light, offer far higher returns when compared to the above two investments. And not just the above two but more too.

Another added benefit mutual funds have over most other investment vehicles is that you can start investing with an amount of as little as ₹500.

3. Low Effort and Time

Directly investing in the equity/stock market or other investment vehicles requires much time in research and analysis. On the other hand, mutual funds are far more straightforward.

Investing in stocks, bonds, securities, and other channels requires excellent skill and hard work. Mutual funds consist of large teams responsible for various investing aspects. For one person to master all such skills is challenging and time-consuming.

In comparison, research and finding a mutual fund are far more accessible. But first, you must find a fund that suits your investment needs and matches your risk appetite.

When you invest in a mutual fund, you can assume you have outsourced investing. The experts at the mutual fund do the heavy lifting for you. However, as an investor, you must monitor the fund’s performance occasionally (not regularly) to ensure it matches your needs.

4. Easy and Convenient

Investing in mutual funds is very easy and convenient. You can do so from anywhere in the world.

You should invest in mutual funds using our platform – groww. In. We at Groww offer a platform to research, buy, track, and sell mutual funds. The entire procedure – from registering to investing in mutual funds and redeeming your investments – is entirely online. Not only is everything online, but it is also paperless. You will not be required to send or receive any physical documents.

We are an online mutual fund distributor registered with the Association of Mutual Funds in India (AMFI). All sensitive data is protected by 256-bit encryption and is completely safe.

All this means you can invest in mutual funds from anywhere worldwide whenever you wish with complete peace of mind.

5. Diversification

With mutual funds, diversification is automatic. In addition, mutual funds are managed to ensure reduced exposure to risk.

Investing in a single instrument too much is very risky. If something negative occurs, you could suffer losses. To avoid such a situation, it is recommended that people diversify their investments.

What that means is that assets should be distributed across different vehicles. Doing so reduces the risk you are exposed to, as the chance of more investments suffering losses together is low.

If you invest in stocks, bonds, etc., you must diversify your investments. Not just that, you must also regularly monitor your investments and get rid of poorly performing and high-risk assets.

The advantage of mutual funds is that you do not have to concern yourself with this. Mutual funds, by their nature, spread out investments and ensure diversification. For example, an equity mutual fund usually has between 45 and 90 different companies’ shares in its portfolio. So if you invest in a mutual fund, your investment is already quite diversified.

However, investing in too many mutual funds or over-diversifying doesn’t necessarily shield you better from risk. It can, however, reduce your returns. Though each person’s financial condition is different, there is a recommended number of mutual funds you should invest in.

6. Double Taxation Avoidance Agreement (DTAA)

India has a DTAA with 85 countries.  DTAA ensures you don’t pay excessive taxes in India and the country of your residence.

Different mutual funds have additional taxes on them. For example, equity mutual funds have a 15% tax on gains made in less than a year from an investment. For investments exceeding a year, there is no tax. How much tax you pay in the country of your residence depends entirely on the local laws.

What a DTAA ensures is that you don’t get taxed twice. This is better understood with the help of an example.

Example: Capital gains in India are taxed at 15% while the same is taxed at 30% in the USA. Since India has a DTAA with the USA, you will have to pay a tax of 15% in India, and in the USA, you’d have the pay the difference in tax. However, since you’ve already spent a 15% tax in India, you’ll be required to pay a tax of only 15% (30-15=15) in the USA.

You may also want to know How to Get Double Taxation Relief?

Conclusion

Mutual Funds are one of the most versatile investment options for NRIs.

Since it offers the scope to diversify your investments, can be conveniently managed at ease, and demand low time and effort, it automatically fits in the brackets of an investment to be deemed perfect. Although it requires careful investment moves based on various factors, mutual funds are still a comfortable alternative for NRIs.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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