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Can NRIs Invest in Mutual Funds in India

  March 15,2023

Can NRIsĀ Invest in Mutual Funds in India?
Are you an NRI looking to invest your money in mutual funds in India? Look no further!

In this blog, we will cover in detail if you can invest in mutual funds as an NRI, the process to invest, and the taxation and redemption process.

Are NRIs allowed to invest in mutual funds in India?
The short answer is yes, of course. The Foreign Exchange Management Act of 2000 has allowed Foreign Institutional Investors and Non-Residents of India to invest in mutual funds. The Reserve Bank of India (RBI) has put forward the rules for investing and redeeming from mutual funds in India. So if you follow certain rules/conditions, you can invest in mutual funds as an NRI.

Procedure to invest in Mutual Funds for NRIs
The procedure to invest in mutual funds for NRIs is not complicated. Let's have a look at it.

Setting up an account

If you're an NRI wanting to invest in mutual funds in India, you must set up an NRO or NRE account. Fund houses don't accept foreign currency payments, and you can't park your money in savings accounts, so you'll have to open one of the above-mentioned accounts.

Investing (either of 2 methods)

As an NRI, you have two methods to invest in mutual funds, i.e. direct method and through power of attorney.

  • Direct method: You can directly invest in MFs in India through this method. You may be asked to furnish your KYC details and other documents, such as recent photographs, bank statements, resident proof of other countries, copies of PAN cards, etc. An in-person verification can also be asked for and done via the Indian embassy.
  • Power of Attorney: You can invest in MFs through Power of Attorney by allowing a third party to make transactions on your behalf. You may need your and Power of Attorney's signature on KYC papers for this.

Getting the KYC done

Your KYC process must be completed as an NRI to invest in MFs. To complete your KYC process, you may be asked to submit a few documents, such as photographs, current address details, copies of passports, etc. It is also possible that you will be asked to complete an in-person verification process.

Note: If you're in Canada or USA, you may be asked to submit additional documents. Also, a few fund houses do not accept investments from NRIs in these countries. Hence, check for those who accept investments from these countries too.

Redeeming your investments

There is no one fixed redemption process that all mutual fund houses in India follow. Hence, it would help if you read the policies related to redemption before investing your money.

A basic process that each fund house follows is to credit your entire corpus, including the invested amount and gains, to your respective NRE or NRO bank accounts. The amount credited will be done after deducting taxes.

Taxation on Mutual Funds
The gains from mutual funds are taxable. The rate of tax depends on the holding period and asset class.

Taxation on equity-oriented funds

STCGs are taxed at a 15% rate when these funds are redeemed within 12 months.

LTCGs are taxed at a 10% rate (without indexation for amounts exceeding Rs 1 lakh) if withdrawn after 12 months.

Capital gains on debt funds

STCGs (i.e. when debt fund units are redeemed within three years) are taxed at your income tax slab rate.

LTCGs (i.e. when such funds are redeemed after three years) are taxed at a 20% rate after indexation and surcharges and cess as applicable.

If India has signed a DTAA, i.e. Double Taxation Avoidance Treaty Agreement with your country, you won't have to worry about paying double taxes on your gains. However, TDS is deducted from capital gains when you redeem your investments.

Final words

As an NRI, you are allowed to invest your money in mutual funds in India, provided that a certain fund has allowed investments from your country. Hence, you must invest in mutual funds as an NRI only after performing detailed research.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.