How can NRIs invest in mutual funds in India?
Non-resident Indians (NRIs) are eligible to invest in mutual funds in India. NRIs contribute around 2.9% to India’s GDP and are one of the key participants in the Indian financial markets. NRI investment in mutual funds can help in increasing liquidity in the Indian financial market. There are several mutual funds for NRIs to choose from.
Who qualifies as an NRI?
According to the Foreign Exchange Management Act (FEMA), 2000, the term NRI applies to an individual who is a citizen of India but is currently residing outside of the country.
Additionally, according to the Income Tax Act of 1961, any Indian person who travels to India for less than 120 days in a fiscal year is considered to be an NRI. A visitor who earns less than 15 lakh rupees from Indian sources in a fiscal year is considered to be an NRI. Additionally, if your income from India is less than 15 lakh rupees in a fiscal year, up to 181 days of physical presence in India are permitted without affecting your NRI status. However, you will be assessed in accordance with the 120-day rule if your income from Indian sources exceeds 15 lakhs in a fiscal year.
These guidelines play an important role in determining whether an individual is eligible for NRI status and how his or her mutual fund gains will be taxed.
Can NRIs invest in mutual funds in India?
Under RBI Schedule 5 of the Foreign Exchange Management Regulations, 2000, NRIs are eligible to invest in mutual funds in India. However, they have to meet certain conditions.
How can NRIs invest?
Open an account
Mutual funds in India do not accept investments in foreign currency. Under the Indian legal system, especially Foreign Exchange Management Act (FEMA), one cannot park money in a regular savings account in India after he or she has gained NRI status. So, one must set up appropriate accounts in India to be able to invest. As an NRI, you have an option between Non-resident External Account (NRE) and Non-resident Ordinary (NRO) accounts.
NRE accounts help NRIs to park their foreign earnings in India. One can avail this option if he or she is looking to send overseas earnings to India.
The earnings of an NRI from India can be kept in these accounts. However, the money kept in this account has to be in Indian rupee.
Getting the KYC done
An NRI must complete the KYC process to invest in India. For the KYC process, one needs a copy of the passport, date of birth, recent photograph, and address. You would need temporary or permanent residential proof, and some banks may ask for in-person verification.
Many mutual funds houses don’t accept investments from the NRIs in the US or Canada due to the complex requirements under Foreign Accounts Tax Compliance Act (FATCA).
Two ways to invest
There are two ways in which an NRI can invest:
Self or direct
The application with all the necessary KYC details must indicate whether the investment is on a repatriable or non-repatriable basis. According to the repatriable basis, NRIs can move the sale or maturity proceeds outside India. In the case of non-repatriable investments, the principal and capital gains cannot be transferred outside of India.
Power of Attorney (PoA)
Another way an NRI can invest is through Power of Attorney. This basically means someone else will invest on his or her behalf. India allows holders to invest on behalf of NRIs and make necessary decisions.
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.