Can NRI invest in mutual funds ?

Short answer Yes. Most of the NRI’s can invest in mutual funds in India, however they could be taxable. Unlike NRI’s from other countries USA/Canada NRI‘s are faced with certain compliance considerations if they’re looking to invest in India. Worry not! There are many AMCs that allow USA/Canada based NRI’s to invest in mutual funds hassle free.

Who is an NRI?

Any Indian who has been residing outside India for 182 days or more of a financial year are considered as Non resident Indian. As an NRI you can hold on existing properties that you brought as well as invest on new properties in domestic boundaries.

Rules regarding Mutual Fund investments for NRI’s

NRI mutual funds are regulated by the foreign Exchange Management Act of 1999. As per the act, NRI’s are allowed to make investments into capital market which include stocks, Exchange Traded Funds and Mutual Funds.

 Requirements:

• KYC documents
• NRE or NRO account

Procedures for NRIs in India

AMCs cannot accept Mutual Funds in foreign currencies therefore to invest in Mutual Funds of India, one has to open an NRO/NRE or Foreign Currency Non-resident (FCNR) account with an Indian bank. Investments can be done by any of the below methods.

  1. Self/Direct

Mutual Fund application along with KYC details indicating whether investment is on a repatriable or non-repatriable basis is a must. KYC documents include:

• Latest photograph
• Attested PAN Card copies
• Passport
• Proof of residence (outside India)
• Bank statement (NRI account)

2. Power of Attorney (POA)

Another way you can invest is by having someone else invest on your behalf and make investment decisions who is known as POA holder. However, signatures of both NRI investor and POA holder is mandatory on KYC documents if you want to invest in mutual Funds in India.

NRE, NRO, FCNR Accounts for Investments in India

To invest in Mutual Funds in India one is supposed to open any of the following accounts with an Indian Bank:

NRE Account This is Non-Resident External (NRE) account which can be in the form of savings, current, fixed or Recurring deposit. You need to deposit the foreign currency in this account. To be able to deposit Indian currency, you must open NRO account. There is no upper limit on the transaction amount in an NRE account.

NRO Account The NRO or Non-Resident Ordinary account is in the form of savings or current account that is meant for NRIs to manage their income earned in India. In NRO account, foreign currency gets converted into Indian rupees after it gets deposited. An NRO account can be held jointly with another NRI as well as resident Indian (close relatives).

FCNR Account This stands for Foreign Currency Non-Repatriable account deposits. In this account, NRIs can remit their Earnings in one of the six currencies such as Canadian $, US$, Euro, AU$, Yen, and Pound. Funds can be transferred from other FCNR or NRE accounts. In FCNR, the principal and interest don’t accrue any tax.

Once you open any of these accounts, you need successfully complete your KYC (Know Your Customer), under KYC norms, which is set by SEBI (Securities Exchange Board of India). One can complete their KYC with any of the SEBI-registered intermediates.

How are NRI MF investors taxed?

• One of the most common worries for NRI investors is that if they have to pay double tax when investing in India. Well, that’s not the case, if India has signed the Double Taxation Avoidance Treaty (DTAT). There are 90 countries that have signed the Common Reporting Standard with the country of your residence.
• The gains on the equity are taxable based on Holding period. Short term capital gains (STCG) on equity attracts tax at the rate of 15%. Long term Capital gains (LTCG) exceeding 1 lakh in a financial year are taxable at rate of 10% without Indexation Benefit.
• For Debt oriented Funds – STCG are taxable as per your income bracket. Holding more than 3 years can attract 20% tax on LTCG with indexation benefits.

USA and Canadian Investors

Mutual fund Investments are little complicate for USA and Canadian Residents due to the compliance requirements under Foreign Account Tax Compliance Act (FATCA). Under FATCA, its compulsory for all Mutual funds to share details of all transactions of NRI with US and Canadian Government. FATCA ensures that there is no deliberate Tax evasion on the income generated by US Citizens overseas.

India signed the Inter-Government Agreement (IGA) for improving International Tax Compliance and Implementing FATCA. Due to this reason, mutual fund houses stopped taking investments for USA and Canada. However after consultation between the fund houses and experts, many have again started the investments from USA and Canada with some conditions. They can make investments only through offline transaction with additional declaration signed by client for open ended funds from SBI, ICICI, TATA, Aditya Birla Sun Life, Franklin Templeton and PPFAS Mutual Fund.

In short NRI’s can Invest in his/her home country. Though there are initial hassles, in a long run return of Investment can be worth it. So, there is certainly no reason for you to be left out of investing in one of the fastest-growing economies.