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Can NRI Invest in Mutual Funds in India?

Written by - Akshatha Sajumon

February 13, 2022 4 minutes

Have you been wondering, can a Non-Resident Indian (NRI) invest in a mutual fund in India? Yes, they can if they abide by the policies set under the Foreign Exchange Management Act (FEMA). One of the most significant advantages of investing in the home country’s mutual fund is that NRIs can benefit from higher savings and revenue-generating opportunities. 

They can choose between a plethora of options available in the Indian mutual fund industry, like Equity, Debt, Hybrid, or even solution-based mutual fund plans. 

 Mutual Fund Regulations for NRIs 

  • Complete KYC process: NRIs are required to complete the full KYC process by submitting their passport copy, furnishing all essential details such as an address, birth date, address, and name. NRIs interested in mutual funds investment need to submit proof of their current (permanent or temporary) residence. However, note that highly reputed investment houses insist on verifying the details in person.
  • Foreign inward remittance certificate (FIRC) : NRIs who make the payment for their mutual funds via a draft or a cheque must send the FIRC certificate and other necessary documents. If they fail to arrange the certificate, they may submit a letter from an Indian bank for personal verification and confirm their fund source.
  • Redemption of funds: When the investor redeems the funds, AMC credits the net amount—including gains and investment amount—into their account after deduction of tax (TDS), if any. Alternatively, they can also get a cheque for the fund redemption of their mutual fund units. The redemption amount could also be credited directly to NRE or NRO accounts.

 What is the Investment Procedure for NRIs in India? 

Indian mutual fund houses accept funds for investment in Indian currency only. They aren’t allowed to deal in any foreign currency. To get started with the mutual funds’ investment procedure, the investor must ensure that they have a Foreign Currency Non-Resident/NRE/NRO account with an Indian bank. Once the account is opened, they can choose any of the following investment methods:

  • Direct self transactions

NRIs can initiate mutual fund transactions regularly through standard banking procedures. The applicants must attach relevant documents supporting their KYC submitted with the application form. The details should also indicate whether it is a non-repatriable investment or a repatriable investment.

The various documents that need to be submitted with a mutual fund investment application include a recent passport-sized photograph of the customer, a PAN card copy, a bank statement, proof of residence outside the country, and a passport. Additionally, the applicants may also be required to get their documents verified in-person by visiting their location’s Indian Embassy. 

  • Transactions through Power of Attorney

NRIs can use their Power of Attorney so that a third party can invest on their behalf in mutual funds. The holders of the Power of Attorney can make investment decisions on behalf of the applicant. Both POA holders and NRI need to have their signatures on the KYC papers.

 How Can NRIs Benefit From Mutual Fund Investments?

 Mutual funds offer countless benefits to the NRIs, including the following: 

Online funds management—anytime, anywhere 

Many people wonder if NRIs can invest in a mutual fund onlinethe answer is yes. The online option of investing in mutual fund schemes through apps like Fisdom has made it easier for NRIs to manage and track their mutual fund virtually anytime through any device. They can switch, redeem, and buy mutual funds. Plus, they can also place withdrawal and transfer requests online.  

Higher profits from currency fluctuations

NRI investors are at a huge profit if the rupee’s value increases against the resident nation’s currency. For example, a NRI residing in the US invests $ 200 in mutual funds when exchanging values at Rs 75 (for a dollar). Investors can reap high profits even when the value of rupee depreciates anytime in the future.

 What about Taxation for NRIs?

Gains from mutual funds can be categorised under short-term capital gains and long-term capital gains. Moreover,  investors need not bear the burden of double taxes in India if they have a signed copy of the Double Taxation Avoidance Treaty with their residence country. However, the capital gains generated through the mutual investment are subject to taxation depending upon the holding period. 

Short-term gains on equity funds are taxed at 15%, while long-term gains (more than INR 1 lakh a year) are subject to tax at 10%. Debt funds attract a short-term capital gains tax at the investors’ tax slab and long-term capital gains are taxed at 20% with indexation benefit. 

NRIs should consider investing in mutual funds in India as it gives them an valuable opportunity to benefit from the growth in the Indian economy. But they should also bear in mind the taxation and foreign exchange regulations in place.

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