NRI Mutual Funds Investment in India

NRI Mutual Funds Investment in India

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Over the past few years, mutual funds have emerged as one of the most preferred investment options to get valuable returns. Read on to know if and how NRIs can invest in MFs in India.

An NRI or Non-resident Indian is an Indian citizen and holds a valid Indian passport but lives in a foreign country intending to stay outside the country for employment, or running a business. If you are employed overseas for at least two years or have been away from India for more than 182 days in a year, you qualify to be called an NRI.

Most NRIs have their family (dependant members) in India, and therefore it is inevitable for them to look for investment opportunities that provide them valuable returns. One of the most sought-after investment options for the NRIs is mutual funds. It gives them an excellent opportunity to build a corpus to accomplish their long-term financial goals like a child’s education, buying a home, etc.

If you are looking to invest in mutual funds in India, you may have several questions – can I invest in MFs in India, what is the process to invest, how to redeem the investment, etc. Read on to know your answers.

Can NRIs invest in mutual funds in India

Yes, all NRIs can invest in mutual funds in India if they adhere to the FEMA (Foreign Exchange Management Act) mandate. As per FEMA, an NRI is:

An individual who is a Person of Indian Origin (PIO) or an Indian citizen who resides abroad for employment or business purposes.

What is the procedure to invest in mutual funds?

Today, many mutual fund management companies offer NRI mutual funds in India. But, these fund houses do not accept investments in foreign currency. So, to start investing in mutual funds, you must open an NRE account or NRO account with any Indian bank. Once the account is functional, you can invest through any of the following methods.

Direct or Self

To start an investment, you must submit an application form to the mutual fund house and comply with KYC norms. You must mention in the form whether the investment is on a repatriable or non-repatriable basis. Once you submit the form, you can carry out the transactions through banking channels.

Typically, most fund houses require NRI investors to submit the following documents:

  • PAN card
  • Copy of passport
  • Copy of bank account statement
  • Proof of current residence outside India
  • Recent passport-sized photograph

Power of Attorney

Another popular way to invest in mutual funds for NRI is to nominate someone to invest on your behalf by drawing a Power of Attorney in their favour. However, for such investment, both you and the PoA must sign on the KYC papers.

How to redeem the investment?

When you redeem the funds’ units, the asset management companies generally credit the corpus (the investments + the gains) to your account after deducting the applicable taxes (if any). Some banks also allow crediting the redemption amount directly to the NRE or NRO account. If you have opted for a non-repatriable investment, then the AMC will credit the amount to your NRO account only.

Tax implication on investments in mutual funds for NRIs

A lot of NRIs worry about paying double tax when they invest in India. However, if India has signed the Double Taxation Avoidance Treaty (DTAA) with the country of your current residence, you need not pay double taxes.

The taxation on mutual funds investment depends on the type of funds you invest and the duration of holding the funds. For example, short-term capital gains from the equity mutual funds are taxed at 15%, and long-term capital gains that exceed Rs. 1 lakh are taxed at 10%.

If you have invested in debt funds, the short-term gains are taxed at 30%, and if you hold the funds for more than three years will be taxed at 20% with indexation benefit.

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