How NRIs Can Invest In Mutual Funds In India?

NRIs who wish to invest in India through mutual funds can do so. DSIJ elaborates on all the aspects involved in such investments.

Indian people living abroad face many issues while investing, especially in the US, and it is not at all a hassle-free process for them. In the US, most of the registered mutual fund companies who have their operations in India don’t generally accept investments made by Indians who are presently living in the US as they have to maintain a cap on the number of non-resident investors they can take.




The Dodd-Frank Wall Street Reform and Consumer Protection Act of the US requires the fund managers to register with the regulator and follow their rules if the fund managers are handling more than 15 US-based investors account. This means that if the fund house acquires more than 15 NRIs, then they have to get registered with the regulator and follow their rules. So, to avoid this, many fund houses don’t generally accept investments from NRIs. Such NRIs can invest in the Indian markets via US-based mutual funds which are India-specific. But doing so may not give you better diversification benefit as these funds are very limited.

If NRIs wish to invest in India, then they can do so. There are some steps towards the same which are given below. India has good economic prospects and equity markets are giving good returns over the long term. So, before getting into investing, it is very important to know certain legal things. 

According to the FEMA (Foreign Exchange Management Act), 1999, an NRI is a person resident outside India who is either a citizen of India or a person of Indian origin.

As per India’s Income Tax Act, 1961, if a person has not resided in India for a period of 182 days or more or if a person’s stay in India is more than 60 days, but less than 182 days in a financial year, even if the stay in India is more than 365 days in the preceding four financial years, the person is a non-resident Indian (NRI). A person also qualifies as an NRI if he has been deputed overseas for more than six months.

After understanding the above fact, now the question arises how to get started with investing. It is important to take a note that all the investments that an NRI makes must be in Indian rupee.

Hence, for this purpose, NRI needs to open either NRE (Non-Resident External rupee) account or NRO (NonResident Ordinary rupee) account or FCNR (Foreign Currency Non-Resident) account with an Indian bank.

If you wish the money that you invested along with gains to be repatriated to your country of residence, then you should open an NRE account. If you wish that the investment that you are making must not get repatriated to your country of residence, then you should open an NRO account and if you wish to hold funds in a foreign currency, then you should open an FCNR account.

There are two ways through which one can invest. First, the investment amount can be directly debited from your NRE or NRO account. Second, you as an NRI, need to give a rupee cheque or draft from your NRE or NRO account or you may also send a rupee cheque or draft issued by an exchange house abroad, which is drawn on its correspondent bank in India.

Remember, if investment is made through cheque or draft, then you must attach FIRC (Foreign Inward Remittance Certificate), which is a proof that the payment is received by the individual from outside the country in a foreign currency or a letter issued by a bank confirming the source of funds along with the application form.

After your initial investments, would it be possible for you to keep a track of your investments and take appropriate actions accordingly? If the answer to this is ‘No” then you can have PoA (Power of Attorney) in place.

PoA allows you to give certain rights to someone you can trust, may it be your friend or relative or even your financial planner to take decisions on your behalf. Mutual funds do allow PoA. The one who is going to take decisions on your behalf, i.e. the PoA holder, needs to submit the attested copy of PoA to the fund house. The PoA must contain signatures of both you as an NRI and the PoA holder.

NRI can even make an Indian resident his/her nominee in mutual funds or vice versa. Mutual funds also allow NRIs to enjoy the benefit of joint holding with an Indian resident or even another NRI.

When it comes to redemptions, all the redeemed amounts are payable in rupees only. The payment is either made through cheques or can even be directly credited to the NRI investor's bank account.

As explained earlier, investments along with its appreciation and dividend earnings are fully repatriable only in the case of NRE and FCNR accounts. In the case of NRO accounts, only the appreciation on investments is repatriable and not the principal amount.

When it comes to tax liabilities, the key difference between the NRI and resident Indian is that in case of investment in mutual funds and stocks by an NRI, there is TDS.

So, is there any double taxation in case of NRIs? It completely depends on the country you reside and whether India has ADTT (Avoidance of Double Taxation Treaty) with your country of residence. For instance, India has ADTT with the US. So,if an NRI who is based in the US, pays short-term capital gains tax of 15 per cent in India, the rate of such being 30 per cent in the US, NRI has to only pay the differential amount of 15 per cent.