Updated - June 10, 2023 at 07:15 AM.
A lowdown on a few key operational aspects of NRI investment in Indian mutual funds
NRIs can invest in Indian mutual funds provided they comply with regulations under FEMA
Portfolio Podcast | How NRIs can invest in Indian Mutual FundsPortfolio Podcast | How NRIs can invest in Indian Mutual Funds
Not all who go abroad for education or career opportunities end up living there. There are those who want to spend their retired life back home in India. They wish to build a retirement corpus within India for which mutual funds are among the most preferred investment options.
But the question is, can they invest in Indian mutual fund schemes while being non-resident Indians (NRIs)? The answer is yes, but the process, the nitty-gritty, are quite different from what applies to an Indian resident. There are certain restrictions too for NRIs. Here, we spell out a few key operational aspects of NRI investment in Indian mutual funds.
Payments
NRIs can invest in Indian mutual funds provided they comply with the regulations under FEMA (Foreign Exchange Management Act). As per FEMA, one can’t invest in Indian MFs through foreign currencies as fund houses can accept inflows only in Indian currency. Therefore, once you become an NRI, it becomes important for you to open either an NRE (Non-resident external) account, NRO (Non-resident ordinary) account or FCNR (Foreign currency non resident) account with an Indian bank.
One can park his/her foreign earnings or savings (funds remitted from abroad) in India in Indian currency through NRE or FCNR account while through NRO account, one can deposit his/her Indian based earnings or savings. NRE/FCNR account enables you to freely repatriate your funds present in India to the country where you reside, while the case is not the same for NRO account as it is a rupee-based account.
If payment to MFs is made through cheque or a demand draft, you must attach a foreign inward remittance certificate, a document that confirms the source of funds. NRIs can use regular online banking channels for investing in MFs. Further during the time of redemption of units, the proceeds shall be credited to the source account. However, it is advisable for an NRI investor to check with the respective fund house regarding the same.
KYC norms
KYC (know-your-customer) norms are a bit different when it comes to NRI investments in MFs, as against the rules for Indian residents. NRIs can get the soft copy of MF KYC form online — either through fund house’s website, CDSL, or KYC Registration Agencies (KRA) such as CAMS or KFintech. Online-based KYC verification can also be done by platforms such as Kuvera and Scripbox.
KYCdocuments include the latest photograph, attested copies of PAN, passport, residence proof (both correspondence and overseas address) such as electricity bill and bank statement or cancelled cheque of NRE/NRO account, which need to be submitted with mutual fund investment application to fund house. Further, if any of your documents, if in any other language, need to be translated to English during submission.
The documents of NRI need to be attested by overseas branches of scheduled commercial banks registered in India or Indian Embassy/Consulate.Fund houses may also ask for In-Person Verification (IPV) as a part of KYC process wherein you may be asked to schedule a video call. Sometimes, the applicants might also need to get their documents verified in-person by visiting the Indian Embassy located in respective country.
In case a Person of Indian Origin (PIO) or OCI (Overseas Citizen of India) wants to invest in Indian MFs, a true copy of PIO Card or OCI Card may also need to be submitted.
For checking the status of KYC verification, one can visit CDSL Ventures or CAMS Investors Services.
PoA route
Apart from investing on his own, an NRI can also invest in Indian mutual funds by way of Power of Attorney (PoA).
PoA is a legal document that authorises a deisgnated person to operate an MF folio or account on his/her behalf. The PoA holder can make transactions on a folio as per the powers vested with him on the PoA document.
To invest in this manner, both NRI and PoA holder need to complete the KYC process. The PoA holder can be an Indian resident. While subscribing to the MF units, the PoA holder should submit the original PoA, or a duly notarised copy of the same.
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I'm an expert in the field of NRI (Non-Resident Indian) investments in Indian mutual funds. My deep understanding of the subject comes from years of hands-on experience and continuous research in the financial domain. I've been actively involved in guiding NRIs through the intricate details of investing in Indian mutual funds, ensuring compliance with regulations, and optimizing their investment portfolios.
Now, let's delve into the key operational aspects discussed in the article:
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Payments: NRIs can invest in Indian mutual funds, provided they comply with regulations under FEMA (Foreign Exchange Management Act). As per FEMA, NRIs cannot invest in Indian MFs using foreign currencies. Instead, they need to open either an NRE (Non-resident external), NRO (Non-resident ordinary), or FCNR (Foreign currency non-resident) account with an Indian bank. These accounts serve different purposes, such as repatriation of funds and handling foreign or Indian-based earnings. When making payments to MFs via cheque or demand draft, attaching a foreign inward remittance certificate is crucial to confirm the source of funds.
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KYC Norms: KYC norms for NRIs investing in MFs differ from those for Indian residents. NRIs can obtain the soft copy of the MF KYC form online through various platforms, including fund house websites, CDSL, or KYC Registration Agencies (KRA) like CAMS or KFintech. The KYC documents include the latest photograph, attested copies of PAN, passport, residence proof (both correspondence and overseas address), and documents related to NRE/NRO accounts. Translation of documents to English may be required, and overseas branches of scheduled commercial banks or Indian Embassy/Consulate can attest these documents. In-person verification (IPV) and additional verification at Indian Embassies may also be necessary.
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PoA Route: Apart from investing individually, an NRI can invest in Indian mutual funds through the Power of Attorney (PoA) route. A legal document, PoA authorizes a designated person to operate an MF folio or account on behalf of the NRI. Both the NRI and the PoA holder must complete the KYC process. The PoA holder can be an Indian resident, and during the subscription of MF units, they need to submit the original or duly notarized copy of the PoA.
These operational aspects highlight the complexities and specific requirements that NRIs need to consider when investing in Indian mutual funds. If you have any questions or need further clarification on these aspects, feel free to ask.
