6 Things NRIs Should Know When Investing in Mutual Funds in India
Credit: North Loop
If you are an NRI ready to invest in Mutual Funds in India, there are certain things about which you need to be well aware. These include the investment procedure for application, mutual fund regulations, taxation on your investments, and even benefits of investing in mutual funds. We have covered all these topics in this article. So let’s begin -
1. Can NRIs invest in mutual funds in India?
As an NRI, you are eligible to invest in mutual funds in India if you follow the guidelines specified by the Foreign Exchange Management Act (FEMA). However, you cannot invest in mutual funds in India using foreign currency.
That is the reason you need to open any one of the following three accounts with an Indian bank – NRE (non-resident external rupee) account, NRO (non-resident ordinary rupee) account or FCNR (foreign currency non-resident) account. To park your foreign earnings in Indian rupees and invest it in mutual funds, you can open an NRE account.
The simplest way to do so is to use a digital banking platform like North Loop that opens your account within 5 minutes and provides 24*7 customer care and services at your disposal. If you want to save the income you receive in India like rent payments, dividends etc. you can open an NRO account.
That is the reason you need to open any one of the following three accounts with an Indian bank – NRE (non-resident external rupee) account, NRO (non-resident ordinary rupee) account or FCNR (foreign currency non-resident) account. To park your foreign earnings in Indian rupees and invest it in mutual funds, you can open an NRE account.
The simplest way to do so is to use a digital banking platform like North Loop that opens your account within 5 minutes and provides 24*7 customer care and services at your disposal. If you want to save the income you receive in India like rent payments, dividends etc. you can open an NRO account.
Get a zero-balance, no-fee NRE/NRO account with North Loop in 5 minutes
2. How can NRIs benefit from mutual fund investments?
India is an emerging economy that provides stability as well as growth. The advantages of mutual fund investment in India are many. Some of them are as follows –
Manage your funds online – Mutual fund KYC (Know Your Client) and applications forms can easily be downloaded from the websites of different mutual funds companies, and even the verification process can get done online through video conferencing.
Since you cannot invest in mutual funds in foreign currency and need to open an NRE/NRO account to do so, digital platforms like North Loop make the entire process seamless and hassle-free. With the option of investing online, you can track and manage your mutual funds from wherever you are and receive regular account statements (CAS) through emails.
Moreover, asset management companies (AMCs) post portfolios disclosures online frequently to ensure that investors like you stay informed and updated.
Exposure to expert-managed portfolios– Mutual funds are one of the most popular investment options in India because of their exposure to professionally managed portfolios of equities, bonds and other securities.
When investing in mutual funds, you get allotted with fund units based on the amount spent and professional fund managers manage this pooled investment that ensures you earn optimum returns.
High Return – There are generally three types of mutual funds that is equity, debt and hybrid. While equity mutual funds do come with higher risks compared to other investment options, say bank fixed deposits, but they also possess scope to provide higher returns as they are completely market-linked.
If the performance of the stock market goes up, investments in equity mutual funds can give high returns.
On the other hand, if you are a risk-averse investor, you can invest in debt mutual funds that are similar to fixed deposits in terms of their return as well as risk profile as they primarily invest in fixed-income instruments.
High liquidity – As compared to investment options like bank fixed deposits which get locked-in for a fixed tenure, mutual funds offer considerably higher liquidity, especially if they fall in the category of debt mutual funds. That is because debt mutual funds invest in short-term financial instruments like treasury bills, commercial papers, and other forms of debt securities that come with short maturity periods of around 91 days. Most importantly, debt mutual funds do not come with a lock-in condition which means that you can withdraw your money whenever you want to.
Manage your funds online – Mutual fund KYC (Know Your Client) and applications forms can easily be downloaded from the websites of different mutual funds companies, and even the verification process can get done online through video conferencing.
Since you cannot invest in mutual funds in foreign currency and need to open an NRE/NRO account to do so, digital platforms like North Loop make the entire process seamless and hassle-free. With the option of investing online, you can track and manage your mutual funds from wherever you are and receive regular account statements (CAS) through emails.
Moreover, asset management companies (AMCs) post portfolios disclosures online frequently to ensure that investors like you stay informed and updated.
Exposure to expert-managed portfolios– Mutual funds are one of the most popular investment options in India because of their exposure to professionally managed portfolios of equities, bonds and other securities.
When investing in mutual funds, you get allotted with fund units based on the amount spent and professional fund managers manage this pooled investment that ensures you earn optimum returns.
High Return – There are generally three types of mutual funds that is equity, debt and hybrid. While equity mutual funds do come with higher risks compared to other investment options, say bank fixed deposits, but they also possess scope to provide higher returns as they are completely market-linked.
If the performance of the stock market goes up, investments in equity mutual funds can give high returns.
On the other hand, if you are a risk-averse investor, you can invest in debt mutual funds that are similar to fixed deposits in terms of their return as well as risk profile as they primarily invest in fixed-income instruments.
High liquidity – As compared to investment options like bank fixed deposits which get locked-in for a fixed tenure, mutual funds offer considerably higher liquidity, especially if they fall in the category of debt mutual funds. That is because debt mutual funds invest in short-term financial instruments like treasury bills, commercial papers, and other forms of debt securities that come with short maturity periods of around 91 days. Most importantly, debt mutual funds do not come with a lock-in condition which means that you can withdraw your money whenever you want to.
3. What is the investment procedure for NRIs?
Self/Direct – After you have opened your NRE/NRO account, you can download the Mutual Funds KYC forms online from the websites of the mutual fund companies and submit them along with all your attested documents and proof of residence. You can use North Loop to invest directly into mutual funds.
Power of Attorney – In case you have appointed a Power of Attorney to invest in India on your behalf, you should ensure that both your signatures are present on the KYC documents and that your power of attorney is also KYC compliant in India.
Power of Attorney – In case you have appointed a Power of Attorney to invest in India on your behalf, you should ensure that both your signatures are present on the KYC documents and that your power of attorney is also KYC compliant in India.
4. What are the Mutual Fund regulations for NRIs investing in India?
KYC documents – Being KYC compliant is a mandatory requirement for NRIs to invest in Indian mutual funds. To complete that process, you can arrange all the necessary documents like a copy of your passport, passport-sized photograph, PAN card, proof of foreign residence and current bank statement to submit to the AMC.
Some fund houses also insist in-person verification that can get done online through video conferencing or by visiting the Indian Embassy in your resident country.
Remittance Certificate – To confirm your payment to the mutual fund company, you have to attach a foreign inward remittance certificate (FIRC) along with other documents.
In case you do not have access to your payment details then a letter from your respective bank confirming the transaction also becomes sufficient. If you’re investing with North Loop - this isn't required!
Redemption – If you invest in MFs in India from funds held in your NRE/FCNR account, the maturity proceeds get credited to your account and are available for repatriation.
Most fund houses credit your investment along with the gains after deducting applicable taxes to your account. However, if you purchase mutual fund units through an NRO account, the maturity proceeds are allowed for repatriation and only get credited to your NRO bank account.
Some fund houses also insist in-person verification that can get done online through video conferencing or by visiting the Indian Embassy in your resident country.
Remittance Certificate – To confirm your payment to the mutual fund company, you have to attach a foreign inward remittance certificate (FIRC) along with other documents.
In case you do not have access to your payment details then a letter from your respective bank confirming the transaction also becomes sufficient. If you’re investing with North Loop - this isn't required!
Redemption – If you invest in MFs in India from funds held in your NRE/FCNR account, the maturity proceeds get credited to your account and are available for repatriation.
Most fund houses credit your investment along with the gains after deducting applicable taxes to your account. However, if you purchase mutual fund units through an NRO account, the maturity proceeds are allowed for repatriation and only get credited to your NRO bank account.
5. How are NRIs taxed for mutual fund investments in India?
Tax on mutual fund investments are based on their holding period. For short-term capital gains, the tax rate is 15% while for long-term capital gains exceeding Rs.1 lakh in a year, the tax rate is 10% without any indexation benefit.
Debt mutual funds, on the other hand, if sold within three years are considered as short-term capital gains and taxed as per the income tax slab applicable to you. If sold after three years, they fall under long-term capital gains and get taxed at 20% with indexation benefit.
Moreover, you can use the Double Tax Avoidance Agreement to eliminate double taxation on your interest income as long as you are paying taxes in your current country of residence.
Debt mutual funds, on the other hand, if sold within three years are considered as short-term capital gains and taxed as per the income tax slab applicable to you. If sold after three years, they fall under long-term capital gains and get taxed at 20% with indexation benefit.
Moreover, you can use the Double Tax Avoidance Agreement to eliminate double taxation on your interest income as long as you are paying taxes in your current country of residence.
6. Which fund houses accept NRI investments?
L&T Mutual Fund
SBI Mutual Fund
PPFAS Mutual Fund
Birla Sun Life Mutual Fund
DHFL Pramerica Mutual Fund
ICICI Prudential Mutual Fund
Sundaram Mutual Fund
UTI Mutual Fund
HDFC Mutual Fund
Fund houses that accept investments from NRIs based in US and Canada:
Aditya Birla Sun Life Mutual Fund
L&T Mutual Fund
SBI Mutual Fund
UTI Mutual Fund
ICICI Prudential Mutual Fund
DHFL Pramerica Mutual Fund
Sundaram Mutual Fund
PPFAS Mutual Fund.
If you want to read more about long-term investment options in India, you can read it here.
To sign up with North Loop, click here.
SBI Mutual Fund
PPFAS Mutual Fund
Birla Sun Life Mutual Fund
DHFL Pramerica Mutual Fund
ICICI Prudential Mutual Fund
Sundaram Mutual Fund
UTI Mutual Fund
HDFC Mutual Fund
Fund houses that accept investments from NRIs based in US and Canada:
Aditya Birla Sun Life Mutual Fund
L&T Mutual Fund
SBI Mutual Fund
UTI Mutual Fund
ICICI Prudential Mutual Fund
DHFL Pramerica Mutual Fund
Sundaram Mutual Fund
PPFAS Mutual Fund.
If you want to read more about long-term investment options in India, you can read it here.
To sign up with North Loop, click here.
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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.
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