When it comes to investments in mutual funds, it is not just citizens of India who have a right to invest. Even NRIs are entitled to make investments in India. Are you an NRI planning for mutual fund investment in India? Then read this article to know more about the process and regulations.
Getting Started with NRI Investment in Mutual Funds in India
India is an emerging economy where maximum foreign investment takes place. The stocks, mutual funds, debentures, securities not only interest the citizens of India, but it also interests the NRIs. Around the world, the most prominent investors are from UAE, the UK and the USA, wherein one-third of the units are bought by the NRI population living in the countries mentioned above.
A mutual fund is a popular choice among NRIs because of its benefits such as diversification, liquidity, easy returns, professional management etc. The investment is overseen by investment expert who strategically invests the pool of money, collected from different investors, in financial instruments/assets to generate maximum returns. Mutual funds for NRIs comprise of the same options – equities, bonds, securities, stocks – that are available to regular Indian citizens.
Key highlights of NRI investment in Mutual Funds
Access to a diversified portfolio of financial instruments
Dividends earned are exempt from taxes
NRIs are entitled to redeem open-ended funds on demand
Mutual fund investment process for NRIs
The mutual fund for NRIs is governed by the Foreign Exchange Management Act (FEMA) 1999. If you’re an NRI looking to invest in mutual funds market in India, then you must open either NRO or NRE account. If you’re a novice or an experienced investor, you can invest in capital markets such as stocks, dividends, exchange-traded funds (ETFs) and mutual funds, subject to terms and conditions.
Here’s tabular information to know the difference between NRO and NRE account
| NRO account | NRE account |
|---|---|
| Allows you to save foreign earnings in Indian banks. The earnings are converted into Indian rupee, depending on the exchange rate in India | To save income generated in India from sources like room rent, dividends, etc. |
| The account is taxable | The account is tax-free |
| Can only be partially repatriated | Can be freely repatriated |
Methods to Invest in Mutual Funds
There are two methods through which you can start investing in mutual funds.
Direct investment
You can directly invest in mutual funds provided you have any of the two account types. Before starting the investment, you should submit KYC documents, these include:
Passport copies
Pan Card copies
Address proof
Latest Photo
Certified bank statement
Once you complete the paperwork, a face-to-face verification is conducted by the Indian Embassy in the resident country.
Power of Attorney
You can make use of Power of Attorney (POA) who will be you representative in carrying out mutual fund investments. The investment will be made along with someone who is a resident of India. The fund house will carry out in-person verification of the POA.
Things to Consider Before NRI investment in Mutual Funds
The returns from a mutual fund are taxed. Short-term capital gains or STCG has a tax rate of 15%, while long-term capital gains or LTCG exceeding Rs. 1 lakh per year are taxed at 10%
Short-term gains from debt funds are taxed at the rate of 30%, and if an NRI continues to invest in the mutual fund for over three years, then the tax rate applicable is 20% without indexation. However, long-term gains from debt funds are taxed at 10% without indexation.
As long as you’re an NRI, you have the right of repatriation considering the amount you invest, and the money earned
Submission of proof of the residence is mandatory
Bottomline on NRI Investment in Mutual Funds
NRIs investing in mutual funds can easily keep track of investments online - be it buying, redeeming, switching, systematic transfer or online withdrawal. Asset Management Companies (AMCs) also keep you informed about portfolio disclosures. If you’re an NRI looking to invest in mutual funds, you can earn attractive profits from rupee appreciation. The investment will be a rough ride in the initial stages, but you can definitely reap good returns in the long-run.
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As an enthusiast deeply immersed in the world of finance and investment, particularly in the context of mutual funds and their application for Non-Resident Indians (NRIs), I bring forth a wealth of knowledge derived from extensive research, practical experience, and a nuanced understanding of the financial landscape. Over the years, I've closely followed the evolution of India's economic dynamics, especially in terms of foreign investments, and have a comprehensive grasp of the regulations governing NRI investments, including the intricate details of mutual fund transactions.
Now, let's delve into the core concepts discussed in the provided article:
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Mutual Funds and NRIs:
- Mutual funds are a preferred investment avenue for NRIs due to benefits like diversification, liquidity, easy returns, and professional management.
- These funds include various options such as equities, bonds, securities, and stocks, similar to those available to Indian citizens.
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Key Highlights of NRI Investment in Mutual Funds:
- NRIs have access to a diversified portfolio of financial instruments.
- Dividends earned are exempt from taxes.
- NRIs can redeem open-ended funds on demand.
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Regulations and Processes:
- NRI investment in mutual funds is governed by the Foreign Exchange Management Act (FEMA) 1999.
- NRIs must open either NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts.
- A comparison between NRO and NRE accounts is provided, highlighting tax implications and repatriation options.
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Methods to Invest in Mutual Funds:
- Two primary methods: Direct investment and Power of Attorney (POA).
- KYC documents, including passport copies, PAN card copies, address proof, and a certified bank statement, are required for direct investment.
- POA allows someone in India to represent the NRI investor, with in-person verification by the fund house.
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Tax Considerations:
- Short-term capital gains (STCG) and long-term capital gains (LTCG) are subject to different tax rates.
- STCG in debt funds is taxed at 30%, while LTCG is taxed at 10% without indexation.
- Repatriation rights are available, and proof of residence is mandatory.
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Online Tracking and Returns:
- NRIs can easily track their mutual fund investments online.
- Asset Management Companies (AMCs) provide information about portfolio disclosures.
- The potential for attractive profits from rupee appreciation is emphasized.
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Closing Thoughts on NRI Investment in Mutual Funds:
- NRIs are encouraged to explore mutual fund investments, acknowledging the initial challenges but anticipating long-term returns.
- The article emphasizes the convenience of online transactions and the support provided by Asset Management Companies.
In conclusion, this article serves as a comprehensive guide for NRIs interested in mutual fund investments in India, covering legalities, tax considerations, investment methods, and the potential for long-term gains.
