Investing in Mutual Funds in India as an NRI

Investing in Mutual Funds in India as an NRI

Mutual funds are an attractive way to supplement your regular income. Along with resident Indians, many NRIs are keen on investing in mutual funds in India. But can you do that?

Yes, you can, as long as you adhere to the related guidelines of the Foreign Exchange Management Act (FEMA). If you fulfill the conditions of being an NRI, the investment options are open for you.

Investors can buy and redeem mutual funds online. They also receive updates and statements via email. So, you can invest truly without any hassles.

Process of Investing in Mutual Funds in India for NRIs

Open a Bank Account

None of the Asset Management Companies (AMCs) in India can accept foreign currency to sell mutual funds to NRIs. So, you would need to open an NRO, NRE, or Foreign Currency Non-Resident (FCNR) account with any recognized Indian bank.

Choose Your Method of Investment

  • Self/Direct: You can carry out all the transactions related to your mutual funds through the banking system. Your application has to clearly state on which basis your investment is – repatriable or non-repatriable.
  • Through Power of Attorney: In this method, you provide the required authorization to someone to conduct the transactions on your behalf. For this purpose, you would need to issue a Power of Attorney to someone in India. But in that case, both yours as well the Power of Attorney-holder’s signatures need to be present on the KYC documents.

Complete your KYC (Know Your Customer)

To be able to invest, your KYC procedure needs to be completed. For this, you have to provide your valid passport details showing your name, date of birth, photograph, and address. You also need to provide your current residence details with proof of the same.

After completing your KYC submission, you would need to fill out and submit the mutual fund application form. Along with that, you would have to make the Foreign Account Tax Compliance Act (FATCA)/ Common Reporting Standard (CRS) declaration through the FATCA/CRS Declaration Form.

What is the Taxation Procedure?

For many NRI mutual fund investors, taxation remains a point of concern. They get worried about being taxed twice in case of mutual fund investments in India. However, if India has signed the Double Taxation Avoidance Agreement (DTAA) with your country of residence, then this problem is taken care of.

The taxation rates are based on the holding duration of the funds.

Type of fund Holding Period
Short Term Long Term
Equity Mutual Fund <12 months 12 months and more
Debt Mutual Fund <36 months 36 months and more
Balanced Mutual Fund <12 months 12 months and more

The rates of capital gains tax as applicable on these funds are as follows.

Type of fund Short-term Capital Gains Tax Long-term Capital Gains Tax
Equity Mutual Fund 15% 10% without indexation
Debt Mutual Fund 30% 20% with indexation
Balanced Mutual Fund 15% 10% without indexation

Indexation is a process to adjust an investment’s purchase price by accommodating the effect of inflation on it. If the purchase price is high, it implies lesser profits and a consequent lower tax. Indexation helps to lower the long-term capital gains. This brings down your taxable income, thereby reducing your tax burden.

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