How to Invest in Mutual Funds in India as an NRI

Non-Resident Indian (NRI’s) is an individual who has an origin from Indian or an Indian citizen who goes outside India with the intention of staying outside the home country, for employment or carrying his/her own business. But, they can do investments in their home country, India and for that purpose, a lot of banks have made some provisions. One of the examples includes NRI banking by SC. When one resides in another country, they might want to explore multiple opportunities for investment and as a result, depending on their country (home country) becomes inevitable. Over recent years, Mutual Funds have become a very popular option which helps them in their futuristic goals, child’s marriage, education or their own retirement, etc.

Mutual funds

 NRIs can invest in Mutual Funds, as long as he/she adheres to the FEMA (Foreign Exchange Management Act). According to FEMA 1999, an NRI is a person:

1. a resident outside India who is either a citizen of India or a person of Indian origin (PIO).
2. who has been in India for 182 days or more during a financial year and 365 days or more during the preceding 4 financial years
3. a person who has been deputed overseas for 180 days or more

Read below to find out what are the steps to invest in Mutual Funds:

1. Setting up the Account

An NRI will need to open an NRE  or NR or a Foreign Currency Non-Resident (FCNR) account with an Indian bank. Mutual Fund Asset Management companies cant accept investments in foreign currency hence opening an account gets important. On account activation, an NRI can invest by any of the below methods:

• Self or Direct

 An NRI can carry out transactions, which include debiting or crediting through normal banking channels.

Their application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include the latest photograph, copies of PAN card which are certified, copy of the passport, outside India residence proof, and a bank statement. The bank may require an in-person verification which an NRI can comply with, by visiting the Indian Embassy in their resident country.

• Power of Attorney

A power of attorney is someone an NRI has appointed to make decisions on his behalf in case if his/her absence. Hence, someone else can invest in the place of the NRI. Mutual fund companies in India allow holders to invest on their behalf and make decisions in regards to the investments of the NRI’s. However, signatures of both the NRI investor and POA should be present on the KYC documents to make these types of investments.

 2. KYC

Before the commencement of investment in Indian mutual funds, an NRI must complete the KYC process. They need to submit a copy of their passport (only relevant pages with name), date of birth, photo and address. The current residential proof is a must, whether temporary or permanent resident in that country. Some fund houses can insist on an in-person verification too. There can be many mutual fund houses in India that don’t allow NRIs from the USA and Canada to invest in their schemes because of the heavy compliance requirements under the Foreign Account Tax Compliance Act (FATCA). And then there are some fund houses which have certain conditions on which they allow investors based in the USA and Canada to put money in their schemes. Additional documents may be required if you have an NRI from the USA or Canada.

 3. How to redeem?

For NRIs, mutual fund investments can be redeemed by complying with the redemption procedure mentioned by the fund houses. Different fund houses in India follow different procedures for redemption by NRIs.The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes and shall be credited to the respective NRE or NRO bank account of the investor. They can also write a cheque for the same.

Taxation for NRI’s

NRI investors can fear that they will have to pay a double amount of tax when they invest in India, and in mutual fund schemes. If India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country, they don’t have to fear paying double tax. As an example to highlight the above, India has signed a DTAA treaty with the US. Hence, if an NRI has already paid the taxes in India, he/she can claim tax relief in the US. The gains from equity-oriented mutual funds are taxable based on the holding period.

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NRI’s can invest in the Mutual Fund industry but there might be some hassles one has to face initially. In the long run, though the investment would be worth it, as you don’t want to miss out on investing in one of the fastest-developing economies of the world.