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Indian economy is comparatively doing way better than most developed nations. Both, the IMF and World Bank project India’s growth in 2018-2019 to be at 7.7 percent. India is one of the top-ranked countries in terms of FDI. So, it should not be surprising to know that foreigners want to invest in India. The easiest way to invest in a growing economy is via mutual funds. However, the most common question that baffles the NRIs is whether they can invest in mutual funds or not.

The simple answer is that NRIs can invest in mutual funds in India subject to the regulations prescribed by FEMA. For NRIs from countries other than US & Canada, the process is simple and straightforward as for any other Indian resident. You may have to follow a few additional regulations in your country of residence, but largely the process is simple. However, if you are an NRI residing in US or Canada, things might be a bit complicated for you.

The compliance requirement is the US and Canada are more stringent as compared to other nations. According to the FATCA, all financial institutions are required to share the details of any financial transaction involving US citizens with the US Government. This act was introduced to prevent tax evasion by US citizens on their overseas income.

How can an NRI invest in Mutual Funds in India

Asset Management companies in India are forbidden from accepting investment in foreign currency. So, first and foremost, you need to open any of the following accounts with an Indian bank:

  • Non-Resident Ordinary rupee (NRO) account,
  • Foreign Currency Non-Resident (FCNR) account,
  • Non-Resident External rupee (NRE) account 

This account will be debited or credit through normal banking channels.

You will have to make an application with the required KYC details along with an indication that the investment is on a repatriable or non-repatriable basis. An in-person verification may be required which can be completed by visiting the Indian Embassy in your country of residence. Other KYC documents such as a recent photograph, PAN card, a certified copy of passport, proof of residency outside India, and bank statement are required.

One perceived easier method is to have someone else invest on your behalf. Mutual fund companies allow power of attorney (PoA) holders to invest on your behalf and take other decisions pertaining to your investments. However, signatures of both the NRI investor and PoA should be present on required documents to make the investment.

Tax Liabilities

NRI investors often fear that they would be subjected to double taxation when they invest in India. Well, that is certainly not the case if India has signed the avoidance of double taxation treaty (DTAA) with the respective country. India has signed this treaty with the US, so any tax paid in India can be claimed as relief in the US tax returns.

The rate of taxation would depend on the type of mutual fund and the tenure of investment. The gains from equity mutual funds are tax-free for an investment of over one yea. For a shorter period the short term capital gain tax is 15 percent. In case of debt funds, for tenure less than three years, the gains are added to the individual’s income. For holdings of more than three years, the gains are taxed at 20 percent with indexation or 10 percent without indexation benefits.

The procedure for an NRI to invest in a mutual fund is not a simple one, yet it is not something that cannot be done. The process has some initial hassles, but in the long-run, the return on investment would be worth your time. At present, eight fund houses accept mutual fund investment from NRIs residing in US & Canada. So, there is certainly no reason for you to be left out from investing in one of the fastest growing economies.

If you had invested Rs 10,000
every month for last 25 years
in equity funds, you could make

₹ 3.3 Crores
at 15%* annual returns

Rs 30 Lakhs

Rs 3.3 Crores

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