How Can NRIs Invest in Mutual Funds in India?
Posted on 17-Jul-2024
6 min read
Investing in Indian Mutual Funds as an NRI? Learn about eligibility, investment options, tax implications, and repatriation processes. Start your global investment journey today!
Table of Content
Have you recently moved abroad or are planning to relocate soon? Being an NRI comes with several perks, yes! But more often than not, the thought that bugs most Non-Resident Indians is that will they ever have a chance to grow their money in India? And will that be enough to come back and settle down once again in their homeland?
This blog by Shriram AMC shall shed some light on the same topic and help you, an NRI (or soon to be one!), build wealth by investing in mutual funds in India. Let’s get started!
There are three main ways to categorize mutual funds: investment objective, asset class, and capitalization.
• Equity Funds: These funds primarily invest in stocks of companies. They aim for long-term capital growth through schemes like large-cap, mid-cap, sector-specific, or thematic investing.
• Debt Funds: These funds invest in fixed-income securities like bonds, government securities, and money market instruments. They offer lower volatility compared to equity funds and provide regular income streams.
• Hybrid Funds: These funds combine equity and debt investments. They aim to balance stability (from debt) with capital appreciation (from equity). Examples include balanced funds, aggressive hybrid funds, and balanced advantage funds.
• Index Funds/ETFs: These funds track a specific market index, offering diversification at a low cost. Index funds and ETFs can be based on equity, debt, or even gold indices.
• Solution-Oriented Schemes: These funds are designed to help you achieve specific financial goals, such as retirement or your child's education. Examples include retirement funds and children's gift funds.
The rest is pretty straightforward!
NRIs can invest in Indian mutual funds through two primary methods:
1. Direct Investment: NRIs can directly invest by completing the Know Your Customer (KYC) process and submitting applications with the chosen AMC, like Shriram AMC. This might involve in-person verification at the Indian embassy/consulate in their resident country.
2. Power of Attorney (PoA): NRIs can appoint a trusted resident of India to manage their investments through a PoA. This route requires both the NRI and the PoA's signatures on KYC documents.
Simple enough to understand? Let us now hop on to the next sections of our discussion.
• Capital Gains Tax: As an NRI, you generally have to pay taxes on profits earned from selling mutual funds in India. The exact tax rate depends on the type of fund (equity or debt) and how long you held it (short-term or long-term). We'll explore the specific rates in more detail later in the chart below.
• Double Taxation: To avoid getting taxed twice on the same income, India has signed tax treaties (DTAAs) with many countries. If your country of residence has a DTAA with India, it can significantly reduce your tax burden.
• Repatriating Funds: The good news is that NRIs can easily bring their original investment amount and any earned profits back home (repatriate) without any restrictions. This means you can access your money whenever you need it.
Disclaimer: This information is for general guidance only. NRIs are advised to consult with a financial advisor to understand the specific tax implications and choose suitable investment options based on their financial goals and risk tolerance.
• Passport (copy of relevant pages)
• Proof of Address (in resident country)
• PAN Card (copy)
• Recent photograph
• Foreign Inward Remittance Certificate (FIRC)
• Expert Guidance: Experienced fund managers handle your investment. They research, allocate assets across different holdings, and make informed decisions about buying and selling to maximize returns.
• Spread the Risk: Mutual funds invest in a variety of companies and assets, which reduces your overall risk compared to putting all your eggs in one basket.
• Easy Access: You can easily sell your mutual fund units (open-ended) on any business day at the current market value (Net Asset Value). This provides you with liquidity whenever you need it.
• Affordability: The fees associated with managing a mutual fund are typically lower compared to the costs of directly investing in individual stocks and bonds. This is because mutual funds benefit from economies of scale.
• Clear Communication: Mutual funds are transparent. You can access information about the fund's investments, performance, fees, and the fund managers through factsheets, annual reports, and other resources.
• Invest on the Go: Many online platforms and apps make it convenient for NRIs to invest in mutual funds. You can manage your investments from anywhere with an internet connection.
• Build Wealth Gradually: Systematic Investment Plans (SIPs) allow you to invest a fixed amount regularly (often monthly). This helps you average out the cost per unit over time (rupee cost averaging) and build wealth steadily.
• Safety and Security: The Securities and Exchange Board of India (SEBI) regulates all mutual funds, ensuring investor protection and promoting good governance within the industry.
• Repatriation: NRE accounts allow full repatriation of principal and capital gains. Repatriation from NRO accounts might have limitations.
• Stricter Regulations: The United States and Canada have stricter compliance requirements compared to other countries. For example, under FATCA (Foreign Account Tax Compliance Act), financial institutions must report financial activity of US citizens to the US government.
• Global Tax Reporting: Many countries, including 90+ that have signed the Common Reporting Standard (CRS), automatically share tax information to combat tax evasion. This means NRIs may face tax reporting requirements regardless of where they invest.
1. Can NRIs invest in mutual funds online?
Yes, NRIs can invest online after completing the KYC process. Some AMCs might require additional verification for online transactions.
2. Is there a minimum investment amount required for NRIs?
Minimum investment amounts can vary depending on the chosen AMC and mutual fund scheme. Some schemes offer SIP (Systematic Investment Plan) options allowing NRIs to invest regularly with smaller amounts.
3. What happens to my mutual fund investments if I return to India?
Your NRI status changes to resident upon staying in India for more than 182 days in a financial year. This might impact tax implications and available investment options. It's recommended to consult a financial advisor for guidance in such scenarios.
4. Are there any charges associated with NRI mutual fund investments?
NRIs might incur charges like entry load (depending on the scheme), foreign currency conversion fees, and AMC fees. Carefully review the expense ratio of the chosen scheme.
5. How can NRIs stay updated on the performance of their mutual fund investments?
Most AMCs offer online investor portals where NRIs can access account statements, track performance, and manage their investments remotely.
This blog by Shriram AMC shall shed some light on the same topic and help you, an NRI (or soon to be one!), build wealth by investing in mutual funds in India. Let’s get started!
What Are the Different Mutual Fund Investment Avenues Open to NRIs?
Looks like the kind of mutual funds available to NRIs for investment are the same as for resident Indians. And you may already be aware of them! But just to jog your memory, here they are explained one more time:There are three main ways to categorize mutual funds: investment objective, asset class, and capitalization.
• Equity Funds: These funds primarily invest in stocks of companies. They aim for long-term capital growth through schemes like large-cap, mid-cap, sector-specific, or thematic investing.
• Debt Funds: These funds invest in fixed-income securities like bonds, government securities, and money market instruments. They offer lower volatility compared to equity funds and provide regular income streams.
• Hybrid Funds: These funds combine equity and debt investments. They aim to balance stability (from debt) with capital appreciation (from equity). Examples include balanced funds, aggressive hybrid funds, and balanced advantage funds.
• Index Funds/ETFs: These funds track a specific market index, offering diversification at a low cost. Index funds and ETFs can be based on equity, debt, or even gold indices.
• Solution-Oriented Schemes: These funds are designed to help you achieve specific financial goals, such as retirement or your child's education. Examples include retirement funds and children's gift funds.
How Can NRIs Invest in Mutual Funds?
Let us first get the basics right! Asset management companies (AMCs) in India do not accept mutual fund investments in foreign currency, as is understandable. So, as an NRI, what do you need to do first? Open an NRO (Non-Resident Ordinary), NRE (Non-Resident Ordinary) or a Foreign Currency Non-Resident (FCNR) account at an Indian bank.The rest is pretty straightforward!
NRIs can invest in Indian mutual funds through two primary methods:
1. Direct Investment: NRIs can directly invest by completing the Know Your Customer (KYC) process and submitting applications with the chosen AMC, like Shriram AMC. This might involve in-person verification at the Indian embassy/consulate in their resident country.
2. Power of Attorney (PoA): NRIs can appoint a trusted resident of India to manage their investments through a PoA. This route requires both the NRI and the PoA's signatures on KYC documents.
Simple enough to understand? Let us now hop on to the next sections of our discussion.
What About Taxation for NRIs?
As mindboggling as the topic of taxes might be, it is not quite impossible to understand them. Let’s learn about the taxation rules on mutual funds for NRIs.• Capital Gains Tax: As an NRI, you generally have to pay taxes on profits earned from selling mutual funds in India. The exact tax rate depends on the type of fund (equity or debt) and how long you held it (short-term or long-term). We'll explore the specific rates in more detail later in the chart below.
• Double Taxation: To avoid getting taxed twice on the same income, India has signed tax treaties (DTAAs) with many countries. If your country of residence has a DTAA with India, it can significantly reduce your tax burden.
• Repatriating Funds: The good news is that NRIs can easily bring their original investment amount and any earned profits back home (repatriate) without any restrictions. This means you can access your money whenever you need it.
| Type of Mutual Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) |
| Equity-oriented | 15% | 10% without indexation |
| Balanced | 15% | 10% without indexation |
| Debt-oriented | According to the tax slab | 20% after indexation |
Disclaimer: This information is for general guidance only. NRIs are advised to consult with a financial advisor to understand the specific tax implications and choose suitable investment options based on their financial goals and risk tolerance.
Documents Required to Complete the KYC Process for NRI Mutual Fund Investment
Here is a list of documents that you’ll usually require to complete your KYC process for mutual fund investments in India:• Passport (copy of relevant pages)
• Proof of Address (in resident country)
• PAN Card (copy)
• Recent photograph
• Foreign Inward Remittance Certificate (FIRC)
Benefits of Investing in Mutual Funds in India for NRIs
We are now all enlightened and aware of how an NRI can go about investing in mutual funds in India. But is it really worth the hype or effort? Let’s find out in this section where we discuss the benefits of investing in mutual funds in India as an NRI:• Expert Guidance: Experienced fund managers handle your investment. They research, allocate assets across different holdings, and make informed decisions about buying and selling to maximize returns.
• Spread the Risk: Mutual funds invest in a variety of companies and assets, which reduces your overall risk compared to putting all your eggs in one basket.
• Easy Access: You can easily sell your mutual fund units (open-ended) on any business day at the current market value (Net Asset Value). This provides you with liquidity whenever you need it.
• Affordability: The fees associated with managing a mutual fund are typically lower compared to the costs of directly investing in individual stocks and bonds. This is because mutual funds benefit from economies of scale.
• Clear Communication: Mutual funds are transparent. You can access information about the fund's investments, performance, fees, and the fund managers through factsheets, annual reports, and other resources.
• Invest on the Go: Many online platforms and apps make it convenient for NRIs to invest in mutual funds. You can manage your investments from anywhere with an internet connection.
• Build Wealth Gradually: Systematic Investment Plans (SIPs) allow you to invest a fixed amount regularly (often monthly). This helps you average out the cost per unit over time (rupee cost averaging) and build wealth steadily.
• Safety and Security: The Securities and Exchange Board of India (SEBI) regulates all mutual funds, ensuring investor protection and promoting good governance within the industry.
Some Important Points to Remember before Investing
Before you dive into investing in mutual funds in India as an NRI, keep these points at the back of your mind:• Repatriation: NRE accounts allow full repatriation of principal and capital gains. Repatriation from NRO accounts might have limitations.
• Stricter Regulations: The United States and Canada have stricter compliance requirements compared to other countries. For example, under FATCA (Foreign Account Tax Compliance Act), financial institutions must report financial activity of US citizens to the US government.
• Global Tax Reporting: Many countries, including 90+ that have signed the Common Reporting Standard (CRS), automatically share tax information to combat tax evasion. This means NRIs may face tax reporting requirements regardless of where they invest.
Conclusion
Mutual funds offer NRIs a convenient and well-structured way to invest in India's stock market. By choosing the right fund house, scheme, and investment channel, and by regularly tracking performance, NRIs can find a solution that aligns with their long-term financial goals. It's important to consider tax implications before choosing a fund. The wide variety of funds across different asset classes and fund houses allows NRIs to invest based on their risk tolerance and preferences.FAQs
Here are some frequently asked questions about investing in mutual funds in India as an NRI:1. Can NRIs invest in mutual funds online?
Yes, NRIs can invest online after completing the KYC process. Some AMCs might require additional verification for online transactions.
2. Is there a minimum investment amount required for NRIs?
Minimum investment amounts can vary depending on the chosen AMC and mutual fund scheme. Some schemes offer SIP (Systematic Investment Plan) options allowing NRIs to invest regularly with smaller amounts.
3. What happens to my mutual fund investments if I return to India?
Your NRI status changes to resident upon staying in India for more than 182 days in a financial year. This might impact tax implications and available investment options. It's recommended to consult a financial advisor for guidance in such scenarios.
4. Are there any charges associated with NRI mutual fund investments?
NRIs might incur charges like entry load (depending on the scheme), foreign currency conversion fees, and AMC fees. Carefully review the expense ratio of the chosen scheme.
5. How can NRIs stay updated on the performance of their mutual fund investments?
Most AMCs offer online investor portals where NRIs can access account statements, track performance, and manage their investments remotely.
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