How Can NRIs Invest in Mutual Funds? (2024)

How Can NRIs Invest in Mutual Funds - The Simple Procedure

Step 1: Set Up an Account

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

Indian laws, specifically the Foreign Exchange Management Act (Fema), do not allow you to park your money in a regular resident savings account in India once you have achieved the NRI status. This law makes it compulsory for an NRI to have the knowledge and know the NRE and NRO account differences and know which suits you more.

• NRE:NRE Accountis well suited for those who want to send the money they have earned overseas to India.
• NRO: Money kept in NRO accounts also has to be in Indian rupee and money cannot be repatriated to a foreign currency easily. NRO Accounts can be used by NRIs to deposit their earnings in India. This is an important difference between NRE and NRO accounts.

Read more on Groww:Difference between NRE and NRO Account

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 documentsconsist of a recent photograph, certified copies of PAN card, a passport copy, residence proof of outside India, and a bank statement. The bank may require an in-person verification which an NRI can comply with, 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, the 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.

Many mutual fund houses in India don’t allow NRIs from the USA and Canada to invest in their schemes because of the cumbersome compliance requirements under the Foreign Account Tax Compliance Act (FATCA). On the other hand, there are some fund houses that have certain conditions on which they allow investors based in the USA and Canada to put money in their schemes.

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

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 the US and Canada:

• Aditya Birla Sun Life Mutual Fund
• SBI Mutual Fund
• UTI Mutual Fund
• ICICI Prudential Mutual Fund
• DHFL Pramerica Mutual Fund
• Sundaram Mutual Fund
• PPFAS Mutual Fund

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:

The table below summarizes the tax on the capital gain from mutual funds:

Important Points to be Noted for NRIs

• If details of a foreign bank account are provided, the application of the NRI will be rejected.
• On redemption of mutual fund units, the tax will be deducted at the source of the capital gains made on the investment.
• Your investment into mutual fund schemes carries the right of repatriation of the amount invested and amount earned only until you remain an NRI.
• The compliance requirements in the 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 the 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 in the world.