For the purpose of investment and taxation, Indian citizens are classified based on their residential status as Resident Indians, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Unlike other investment vehicles, mutual fund investments can be made by NRIs without any special approval from RBI or any other governing body. These investments made by NRIs can be repatriable or non-repatriable in nature.
Repatriable and Non-Repatriable Mutual Fund Investments
When an Indian citizen or a Person of Indian origin residing in a different country makes an investment, the funds can be remitted from abroad or sourced from local account. For all investments in mutual funds made through the money remitted from abroad, the redemption proceeds can be remitted back to the originating account (NRE or FCNR) and can be repatriated. Such investments are called Repatriable investments.
On the other hand, investments made in mutual funds made through the money sourced from an NRO account cannot be repatriated. Such investments are called non-repatriable investments.
Repatriation of Mutual Fund Investment Proceeds
As explained above, a repatriable investment is one where the mutual fund investment is made by debiting the Non-resident External (NRE) or Foreign Currency Non Resident (FCNR) account of the NRI.
By definition, an NRE account allows NRIs to park their overseas earnings in India (INR account). Also, NRIs can repatriate the funds from this account at any time, along with the interest earned without any tax liabilities. A FCNR account is a term deposit that can be maintained by an NRI in foreign currency. The balances in an FCNR account are freely repatriable too.
NRIs wanting to invest in Mutual funds in India, need to decide if they want to repatriate the earnings from such investment/s or not. If the answer is affirmative, then such mutual fund investments should be made through an NRE or FCNR account only. Since balances in these accounts are freely repatriable, the investor can freely repatriate the funds whenever he/ she chooses. On the other hand, if the mutual fund investment made by an NRI is made through a Non Resident Ordinary (NRO) account, then the earnings from such investment/s will not be repatriable.
On redemption, the proceeds are paid either through an INR cheque payable to the NRE account of the NRI or through a USD draft drawn at the prevalent rates and RBI rules.
These investments can be made through a systematic investment plan (SIP) too. Remember, NRIs are not allowed to gift mutual fund units to their relatives in India.
In a Nutshell…
Repatriation of the earnings made on mutual funds in India by NRIs is possible provided the funds for investment are remitted from overseas. The net income or capital gains (post tax) arising out of the investment can be repatriated. Even in case of non-repatriable investments, the dividend arising out of such investment can be repatriated.