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How Can NRIs Invest in Mutual Funds?

NRIs can invest in Indian mutual funds through NRE or NRO accounts, either directly or by granting Power of Attorney to a trusted individual in India.

  • 1,834 Views | Updated on: Sep 04, 2024

Whether you are an Indian citizen or NRI, mutual funds attract you with their potential for growth, diversification benefits, and professional management. Mutual funds are a popular investment choice for NRIs. While they can indeed invest in these funds, understanding the specific details requires a careful read of the scheme information document. This blog provides a comprehensive guide on important questions like: can NRI invest in mutual funds in India?

Can NRIs Invest in Mutual Funds in India?

Non-resident Indians (NRIs) can invest in mutual funds in India. The process is quite easy, but it does involve adhering to certain regulations set by the Foreign Exchange Management Act (FEMA) and completing the Know Your Customer (KYC) formalities. By doing so, NRIs can enjoy the benefits of India’s growing economy and potentially high returns from mutual fund investments.

How an NRI Can Invest in Mutual Funds? - Step-by-Step Procedure

If you are an NRI and are planning to invest in mutual funds in India, you should pay attention to the following steps:

Step 1: Complete the KYC Process

The first step is to complete the KYC process. This is mandatory for all investors, including NRIs. You’ll need to submit your identity and address proof, along with a passport-sized photograph.

Step 2: Choose the Right Account

NRIs must have either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) bank account in India to invest in mutual funds. The choice between NRE and NRO depends on whether you want your funds to be repatriable (freely transferable abroad).

Step 3: Select the Mutual Fund

Next, choose the mutual fund scheme that aligns with your financial goals and risk appetite. Depending on your investment horizon and risk tolerance, you can invest in equity, debt, or hybrid funds.

Step 4: Fill Out the Application Form

Fill out the mutual fund application form. Ensure you mention your NRI status and provide details of your NRE/NRO account. You can do this either online or offline.

Step 5: Make the Investment

Transfer the investment amount from your NRE/NRO account to the mutual fund’s account. You can opt for a lump sum investment or a Systematic Investment Plan (SIP), where you invest a fixed amount regularly.

Step 6: Track Your Investment

Once invested, you can track the performance of your mutual fund through online platforms, mobile apps, or by receiving regular statements from the fund house.

Documents Required to Complete the KYC Process for NRI Mutual Fund Investment

Having proper documents is one of the primary requirements for fulfilling the KYC verification process. It is necessary to have the following documents:

  • Passport: Copy of your passport, including relevant visa pages.
  • Overseas Address Proof: Utility bills, bank statements, or any other document showing your address abroad.
  • Indian Address Proof: If you have an address in India, provide proof such as an Aadhaar card, electricity bill, etc.
  • PAN Card: Permanent Account Number (PAN) card issued by the Indian Income Tax Department.
  • Photograph: Recent passport-sized photograph.

NRI Taxation for Mutual Funds in India

Taxation for NRIs investing in mutual funds is a bit different compared to resident Indians. To get the basic understanding, take a quick look at the following:

Equity Funds

  • Short-Term Capital Gains (STCG): Gains on investments held for less than a year are taxed at 15%.
  • Long-Term Capital Gains (LTCG): Gains on investments held for more than a year are taxed at 10% for gains exceeding ₹1 lakh per financial year.

Debt Funds

  • Short-Term Capital Gains (STCG): Gains on investments held for less than three years are added to your income and taxed as per your income tax slab.
  • Long-Term Capital Gains (LTCG): Gains on investments held for more than three years are taxed at 20% after indexation.

Tax Deduction at Source (TDS)

TDS is applicable to the redemption of mutual funds for NRIs. It is deducted at the source before the payment is made to the NRI investor.

Benefits of Investing in Mutual Funds in India for NRI

Every investment is done for the sole purpose of achieving some benefit from it. Let us take a look at the benefits NRI can avail of investing mutual funds in India:

  • Diversification: when there is a need for maximum returns, mutual funds offer a diversified portfolio, reducing risk.
  • Professional Management: Funds are managed by experienced professionals. Therefore, you do not have to keep looking at your portfolio every minute of the day.
  • Repatriation: Investments made through NRE accounts are repatriable. This profits the seller and buyer equally.
  • Flexibility: Wide range of fund options catering to different risk appetites and goals, making mutual funds a popular choice among foreign investors as well.
  • Systematic Investment Plans (SIPs): Mutual funds also allow disciplined regular investment in smaller amounts.

Important Points to be Noted for NRIs

There are some important things that should be noted for NRIs regarding investments in mutual funds in India are as follows:

  • Regulatory Compliance: Always ensure compliance with FEMA regulations.
  • Taxation: Be aware of the tax implications in both India and your country of residence.
  • Repatriation Rules: Investments through NRE accounts are fully repatriable, while those through NRO accounts have certain restrictions.
  • Country Restrictions: NRIs from the U.S. and Canada may face restrictions on certain mutual funds due to stringent regulations.
  • Double Taxation Avoidance Agreement (DTAA): Check if your country has a DTAA with India to avoid double taxation.

Final Thoughts

Investing in mutual funds in India can be a lucrative option for NRIs looking to diversify their portfolio and capitalize on the Indian economy’s growth potential. While the process is easy, it is crucial to stay informed about the regulatory requirements and other relevant details to make informed investment decisions. With the right approach and awareness, NRIs can effectively invest in Indian mutual funds and reap the benefits of their investments.

FAQs on Can NRIs Invest in Mutual Funds

1

What are the eligibility criteria for NRIs to invest in Indian mutual funds?

NRIs must comply with the Foreign Exchange Management Act (FEMA) regulations and complete the Know Your Customer (KYC) process to invest in Indian mutual funds.


2

Are there any restrictions on the types of mutual funds NRIs can invest in?

NRIs can invest in most mutual fund schemes in India, but they may face restrictions on certain funds due to specific country regulations, such as those from the U.S. and Canada.



3

Can NRIs invest in mutual funds through their NRE/NRO accounts?

Yes, NRIs can invest in mutual funds using their NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts, subject to applicable regulations and fund house policies.


4

What is the procedure for NRIs to redeem their mutual fund investments?

NRIs can redeem their mutual fund investments by submitting a redemption request form or online through the fund house’s website, and the proceeds can be credited to their NRE/NRO accounts.


5

How can NRIs track their mutual fund investments?

NRIs can track their mutual fund investments through online platforms, fund house websites, mobile apps, and by receiving regular account statements via email.


6

Are NRIs allowed to invest in SIPs (Systematic Investment Plans)?

Yes, NRIs are allowed to invest in SIPs, enabling them to invest a fixed amount regularly in a mutual fund scheme.


7

What are the common challenges NRIs face when investing in mutual funds?

NRIs may face challenges such as tax implications in both India and their country of residence, compliance with multiple regulatory requirements, and potential restrictions from certain mutual funds.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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