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NRI Investment in Mutual Funds in India: Process, Regulations and More

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Most Indians migrate abroad in search of better opportunities. Unsurprisingly, many harbor the dream of coming back one day. A majority has dependents in their home country. In such scenarios, making investments in India is inevitable.

This article deals with the oft-repeated query – can NRIs invest in mutual funds in India?

  1. Can NRIs invest in Indian mutual funds?
  2. How can NRIs benefit from mutual fund investments?
  3. What is the investment procedure for NRIs in India?
  4. Mutual fund regulations for NRIs
  5. How are NRI mutual fund investors taxed?
  6. Which fund houses accept NRI investments?
  7. Points to remember when investing in India


1. Can NRIs invest in mutual funds in India?

Certainly, NRIs can invest in mutual funds in India – as long as they adhere to the Foreign Exchange Management Act (FEMA). A mutual fund in your home country can give you a diversified portfolio with the desired mix of debt and equity securities. Even if you are risk-averse and want a fixed income investment avenue, the Indian debt market comes with higher interest rates. You may start with equity funds, debt funds or hybrid funds. 

2. How can NRIs benefit from mutual fund investments?

As one of the fastest growing economies in the world, Indian economy attracts thousands of investors from abroad. Given below are some of the benefits NRIs can enjoy by investing in Indian mutual funds.

a. Easy to manage funds online from anywhere

With the option of investing online, it is easier to track and manage your mutual fund from the residence country too. Investors can buy, redeem, switch as well as opt for systematic transfer or withdrawals online. No need to give cheques, make DDs, fill in physical forms or even be in the same country! You will receive regular account statements (CAS) via email. Asset Management Companies also post portfolio disclosures online to keep investors informed.

b. Scope for more profits from rupee appreciation

If the INR value has hiked on the resident country’s currency, it means more profits for the investor. For instance, if an NRI from the UK invests 1000 pounds in a mutual fund in India at an exchange rate of Rs. 100 to 1 pound. Even with possible depreciation, the investor can reap good returns. NRIs and PIOs can also get the same benefits by investing in India-based mutual funds in their own country of residence.


3. What is the investment procedure for NRIs in India?

Asset Management Companies in India cannot accept investment in foreign currency. For this, the first step is to open an NRO account, NRE account or a Foreign Currency Non-Resident (FCNR) account with an Indian bank. You can invest by any of the below methods.

a. Self/Direct

One can carry out transactions, debiting or crediting through normal banking channels. Your application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include a recent photograph, certified copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification which you can comply by visiting the Indian Embassy in your resident country.

b. Via Power of Attorney

Another easier but common 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 the KYC documents to make the investment.


NRIs can invest in mutual funds


4. Mutual fund regulations for NRIs

a. KYC for NRIs

To complete the KYC process, submit a copy of your passport – relevant pages with name, date of birth, photo and address. The current residential proof too is must, whether temporary or permanent. Some fund houses may insist on In-Person Verification too.

b. FIRC (Remittance Certificate)

If you have made the payment via a cheque or a draft, you must attach a Foreign Inward Remittance Certificate (FIRC) with it. In case, that is not possible, a letter from the bank would also do. This confirms the source of funds.

c. Redemption

The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes. They can also write a cheque for the same. Some banks allow to credit the redemption amount directly to the NRO/NRE account. If you have opted for non-repatriable investment, they can credit the proceeds only to an NRO account.


5. How are NRI mutual fund investors taxed?

NRI investors often fear that they will have to pay double tax when they invest in India. Well, that is certainly not the case if India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country. For instance, India has signed this treaty with the US. Hence, you can claim tax relief in the US, if you have already paid taxes in India.

The gains from equity mutual funds are taxable based on the holding period. Short term capital gains attract tax at the rate of 15%. However, Long Term Capital Gains (LTCG), in excess of Rs 1 Lakh, are taxable at the rate of 10%.

In case of debt funds, Short Term Capital Gains are taxable at the rate of 30%. Holding the fund for more than three years will result in 20% tax on the gains with indexation benefit. LTCG on non-listed funds will be taxed at 10% without indexation.


6. Which fund houses accept NRI investments?

a. SBI Mutual Fund

b. Birla Sun Life Mutual Fund

c. ICICI Prudential Mutual Fund

d. UTI Mutual Fund

e. HDFC Mutual Fund

f. Sundaram Mutual Fund

g. DHFL Pramerica Mutual Fund

h. PPFAS Mutual Fund

i. L&T Mutual Fund

7. Points to remember when investing in India

a. Your investment carries the right of repatriation of the amount invested and amount earned, only until you remain an NRI.

b. Residential address in the resident country is a mandatory field. Hence, you must also attach an attested proof along with application.

c. The compliance requirement is the US 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 US person with the US Government.

d. Are you a resident of any of the 90 countries that have signed Common Reporting Standard? CRS is a global reporting system to combat tax evasion.

In short, NRIs can choose to invest in his/her home country. The process may have some initial hassles. However, in the long run, the return on investment would be worth it. Currently, only eight fund houses accept mutual fund investment from NRIs residing in the US & Canada. So, there is certainly no reason for you to be left out of investing in one of the fastest growing economies.