Insights/Glossary

Mutual funds stand as a highly favored investment choice among Non-Resident Indians (NRIs) in India. This avenue allows NRIs to channel funds into equity, debt, or liquid funds through mutual funds. Nevertheless, the process for NRIs to invest in mutual funds differs somewhat from that applicable to resident Indians. Prior to delving into mutual fund investments in India, NRIs should acquaint themselves with eligible mutual fund schemes, the investment protocol, regulatory aspects, and the taxation pertaining to capital gains. Presented here are crucial insights into mutual funds for NRIs.

Can NRI invest in Indian mutual funds?

The simple answer is yes NRIs, as well as PIOs, can invest in Indian mutual funds provided they adhere to the regulations of the Foreign Exchange Management Act (FEMA).

NRIs can invest in mutual funds in India on repatriation as well as a non-repatriation basis. However, there are only a few asset management companies (AMCs) that accept mutual fund applications from NRIs in the USA and Canada. So, NRIs from these countries must check when investing in Indian mutual funds. 

NRIs are offered most of the benefits and conveniences as resident investors while investing. They can invest in equity funds, debt funds, or hybrid funds depending on their investment goals and risk tolerance. NRIs can repatriate the redemption proceeds as and when they wish to. 

Benefits of mutual funds for NRIs

India stands out as one of the globe's rapidly expanding major economies, drawing substantial foreign investments. NRIs have the opportunity to participate in India's growth.

How can NRI invest in Mutual Funds in India?

There are certain requirements based on the guidelines of FEMA for being an NRI for doing the same which are:

1. An NRE/NRO Bank Account: For an NRI, their funds can only be managed through the NRE or NRO Bank Accounts in India. Therefore, it is mandatory for an NRI to carry out investments in Mutual Funds using either of these accounts

2. Documentation: There is a set of documents that you must produce in order to invest in mutual funds in India. The following documents are needed for Know your Customer (KYC) of Mutual Funds for NRIs:

● Completely filled and signed KYC Form

● Identity Proof: Passport and PAN Card (Self-Attested)

● Address Proof: Mandatory for NRIs. (Includes both correspondence and overseas address)

● Cancelled Cheque of NRE/NRO Account

Now, NRIs can either invest in mutual funds from their NRE/NRO Accounts

3. KYC/Attestation (IPV): The verification is done for NRIs by a certified entity for the acknowledgement of the fact that the investor has in his/her possession, all the original documents that he/she has mentioned in the KYC Form. The IPV can be done seamlessly on a video call

Taxation Rules for NRI Mutual Fund Investments

Taxation is a very crucial aspect in any asset class. The taxation on Mutual Funds is almost the same for NRIs and Residents. Different types of Mutual Funds are taxed differently for NRIs: 

*(Equity Funds: An equity fund is a mutual fund that invests principally in stocks)

*(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities etc.)

*(Minimum Holding Period: It is a stipulated period defined to differentiate the gains as long term and short term. Assets held for less than minimum holding period will be taxed on short term and assets held for more than the minimum holding period will be taxed on a long term basis)