How an NRI can invest in Mutual Funds in India?

Updated on: 2021-02-06 - 3 mins read

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

In our previous blogs we discussed about Remittance and various Investments options available for NRIhttps://remitanalyst.com/blogs/invetment_options_for_nri_in_india

Before we start, I would like to share one statistic which highlights the fact that only 8.3% of remittances coming in India are invested in equity class. This is an eye opening stat. We all know that equity asset class generates more returns than bank deposits and with recent interest rates offered on deposits the money saved by you kept in bank deposits is actually a de-appreciating asset when we consider inflation cost (7-8%) with it. A wise investor would always prefer to have the money saved 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 per cent), followed by deposits in banks (20 per cent) and investments in landed property and shares (8.3 per cent)

What are Mutual funds investment options for NRI in India

NRI investment in Indian Mutual Funds on a full repatriation as well as 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 of the RBI to invest in mutual fund schemes in India. All they need is a PAN card and a non-resident account.
  • If you have spent more than 182 days living outside India, then your status changes to NRI. You need to convert your salary/savings account to non-resident ordinary or NRO account before investing.
  • 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.
  • To invest on a repatriable basis you must have an NRE savings account or FCNR account.
  • There are three types of non-resident accounts: non-resident (external) rupee (NRE), Foreign currency (nonresident) (FCNR) and non-resident (ordinary) rupee (NRO) accounts.
  • When an individual leaves India for employment or for business or for a 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 NRO account.
  • An NRE account may be opened a fresh. An NRE account is funded from remittances from an overseas bank account. Funds from an NRE account are freely repatriable.
  • It should however be noted that 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 feasibility of investing in Indian funds before actually investing.
  • Since NRIs are based abroad, they need to comply with the guidelines of the Foreign Exchange Management Act (FEMA) before they can invest in mutual funds.
  • KYC process to invest in MFs for NRIs

    1. There are two requirements for NRIs to start investing in MFs in India: PAN Card and rupee- designated NRO or NRE bank account.

    2. The documents required to complete the one-time KYC process are: PAN card copy; passport copy ( front and back page); foreign address proof, an Indian address proof ( cancelled cheque or bank statement from NRE or NRO account); person of Indian origin or Overseas Citizen of India (OCI) certificate- required for investors who are not Indian citizens.

    3. While submitting the application 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 rules of capital gains 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 Repatriable basis or non-Repatriable basis.

    3. For example, if you have invested from an NRO account, then the redemption will only be credited into the favour 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 case of NRI / FCNR investments, you can opt for redemption into your NRO account.

    Calculation of capital gains for NRIs

    1. In 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 case of debt funds, the STCG (up to 3 years) will be taxed at the peak rate of tax applicable to the NRI. In case of LTCG on debt funds, the taxation will be at 20.6% after considering the benefit of indexation.

    TDS on capital gains and dividends

    This is something unique that NRIs need to be aware of when they invest in Indian mutual funds. If the capital gains or dividends paid to the NRI are taxable, then the fund will deduct the TDS and only pay the net amount to the NRI. This is where 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 and register themselves with AMFI and obtain a 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 timely basis. Employees in other functional areas should also be encouraged to obtain the same certification. 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 details:

    Name: Varsha Kendre, ARN: ARN-168529

    Email: lvarsha2009@gmail.com

    Contact: +91 98902-80254