How NRI can invest in Mutual Funds in India?

Updated on: 2021-02-06 - 4 mins read
Mutual FundsNRI investmentCapital gainsTDSFinancial advisor

Hello readers! I hope you are doing well. We at RemitAnalyst decided to develop a blog series to educate our readers about Remittance and its importance in every Indian household where at least a single person is living abroad, whether for education, business, or a dream job. It is the first blog from the series. We discuss how an NRI can invest in Indian Mutual Funds and details.

In our previous blogs, we discussed Remittance and various Investment options for NRI.

Before we start, I would like to share one statistic highlighting that only 8.3% of remittances coming into India are invested in equity class. It is an eye-opening stat. We all know that the equity asset class generates more returns than bank deposits. With current interest rates offered on deposits, the money saved by you kept in bank deposits is a de-appreciating asset when we consider inflation cost (7-8%) with it. A wise investor would always prefer to have the money saved and give appreciating returns. Hence Equity Mutual Funds are best suited to park your savings in Indian markets instead of de-appreciating bank deposits.

More than half of remittances received by Indian residents were used for family maintenance, i.e., consumption (59.2 percent), followed by deposits in banks (20 percent) and investments in landed property and shares (8.3 percent)

where-remittance-money-used

What are Mutual funds investment options for NRI in India?

NRI investment in Indian Mutual Funds on full repatriation and non-repatriation basis.

(Repatriation is the process of returning an asset, an item of symbolic value, or a person—voluntarily or forcibly—to its owner or their place of origin or citizenship.)

Pre-requisites for NRI’s :

  • NRIs do not require any special approval from the RBI to invest in mutual fund schemes in India. All they need is a PAN card and a nonresident account.
  • If you have spent more than 182 days living outside India, your status changes to NRI. Before investing, you need to convert your salary/savings account to a nonresident ordinary or NRO account.
  • Once converted to NRO, you can use it to invest in mutual funds (MFs). You will need to do a fresh MF KYC as an NRI.
  • You must have an NRE savings or FCNR account to invest on a repatriable basis.
  • There are three types of nonresident accounts: nonresident (external) rupee (NRE), Foreign currency (nonresident) (FCNR), and nonresident (ordinary) rupee (NRO) account.
  • When an individual leaves India for employment, business, vacation outside India, or any other purpose indicating his intentions to stay abroad for an uncertain period, his existing resident bank accounts should be designated as an NRO account.
  • An NRE account may be opened fresh. An NRE account is funded from remittances from an overseas bank account. Funds from an NRE account are freely repatriable.
  • A few countries, such as US and Canada, have restricted investments by NRIs in Mutual Funds without relevant disclosures.
  • NRIs from these countries thus need to check once with their advisor on the feasibility of investing in Indian funds before actually investing.
  • Since NRIs are based abroad, they must comply with the Foreign Exchange Management Act (FEMA) guidelines before they can invest in mutual funds.

KYC process to invest in MFs for NRIs

  1. NRIs have two requirements to start investing in MFs in India: PAN Card and a rupee-designated NRO or NRE bank account.
  2. The documents required to complete the one-time KYC process are a PAN card copy; passport copy ( front and back page); foreign address proof, an Indian address proof (canceled cheque or bank statement from NRE or NRO account); a person of Indian origin or Overseas Citizen of India (OCI) certificate- required for investors who are not Indian citizens.
  3. While applying after completion of the KYC, the details of the Indian bank account must also be mentioned in detail in the application form.
  4. The NRI can choose to invest in mutual funds directly, or he can also choose to invest through power of attorney (POA).

Redemption of mutual funds

  1. When the fund is redeemed, the capital gains rules will apply in the same way as in the case of resident Indians.
  2. Your redemption credit will be based on whether the investment came on a repatriable or non-Repatriable basis.
  3. For example, if you have invested from an NRO account, then the redemption will only be credited to the favor of that particular NRO account. If you invested by debit to your FCNR or NRE account, then the redemption proceeds will also be credited to the same account. However, in the case of NRI / FCNR investments, you can opt for redemption into your NRO account.

Calculation of capital gains for NRIs

  1. In the case of equity funds, the short-term capital gains (up to 1 year) will be taxed at 15.45% (15% + cess), while LTCG will be taxed at 10% flat above Rs.1 lakh of capital gains in the year.
  2. In the case of debt funds, the STCG (up to 3 years) will be taxed at the peak tax rate applicable to the NRI. In the case of LTCG on debt funds, the taxation will be at 20.6% after considering the indexation benefit.

TDS on capital gains

It is something unique that NRIs must be aware of when investing in Indian mutual funds. If the capital gains or dividends paid to the NRI are taxable, the fund will deduct the TDS and only pay the net amount to the NRI. The tax treatment for NRIs differs from the practice applicable to resident Indians

Important Note

Intermediaries, including the sales personnel of intermediaries engaged in sales/marketing, shall obtain NISM certification, register themselves with AMFI and obtain an Employee Unique Identification Number (EUIN) from AMFI apart from AMFI Registration Number (ARN). The Intermediaries shall ensure that the employees quote the EUIN in the Application Form for investments. The NISM certification and AMFI registration shall be renewed on a timely basis. Employees in other functional areas should also be encouraged to obtain the samecertification. Read more at:https://www.amfiindia.com/research-information/circulars-and-announcements/announcements/revised-code-conduct-of-inter-mf.

To help you with any queries on Mutual Fund Investments, we have NISM certified Mutual Fund advisor for your help. Please find below the details.

Name: Varsha Kendre, ARN: ARN-168529

Email:lvarsha2009@gmail.com

Contact:+91-9890280254