NRI Mutual Fund Investments

 NRI MUTUAL FUND INVESTMENTS - HOW CAN NRIS INVEST IN MUTUAL FUNDS?

Career-oriented higher education, a well-paid job, and a social culture that accepts diversity are some reasons why Indians prefer to leave their home country to become NRIs (Non-Resident Indians). A report confirms that there are 1.3 crore NRIs and 3.2 crore OIs (Overseas Citizens of India). Unsurprisingly, most of them dream of staying connected to their home country.

If you are also an NRI with dependents in India, do you want to build this connection through mutual fund investments? There is a common misconception that NRIs cannot invest in mutual funds in India, which is not valid.

If this question has been bothering you, you need to know the truth to start making NRI mutual fund investments.

CAN NRIS INVEST IN MUTUAL FUNDS IN INDIA?

NRIs can invest in mutual fund schemes in India if they follow the rules defined under the Foreign Exchange Management Act (FEMA). You should also know that some Asset Management Companies (AMCs) may not accept mutual fund investment applications from NRIs in the US and Canada. The definition of NRI in FEMA determines whether you can invest in mutual funds or not. 

Here are the details:

● NRI refers to an individual residing outside India but is an Indian citizen, as defined under Regulation 2 of FEMA notification No. 13.

● As per the Income Tax Act 1961, generally NRIs are individuals who stays in India for less than 182 days in a year.

HOW CAN YOU BENEFIT FROM NRI MUTUAL FUND INVESTMENTS?

You might know that India is one of the leading economies of the world and attracts foreign investors to make their contribution. If you choose to make NRI mutual fund investments, you may benefit in the following ways:

1. Online fund management. 

With the easy availability of investment apps, investing in mutual funds has become much easier. Besides this, you can track fund performance from anywhere in the world. Envision buying mutual fund units from a foreign country by starting an SIP* for NRI or redeeming them in just a few clicks online.

*Note – SIP Stands for Systematic Investment Plan, wherein you can regularly invest a fixed amount at periodical intervals and aim for benefits over a period of time through the power of Compounding.

2. Potential for higher returns with rupee value appreciation.

 If the currency of your current resident country depreciates against the Indian rupee, it will result in higher returns for you. For example, if you live in the UK and have invested 500 pounds in a mutual fund scheme in India by exchanging it for Rs. 100 for every pound, you can reap better returns in case the rupee value appreciates against that of a pound. 

MUTUAL FUND INVESTMENT PROCEDURES FOR NRIS. 

The most crucial step towards making NRI mutual fund investments is to know what you need for the same. AMCs in India are not allowed to accept investments directly in foreign currencies. Therefore, you need to open an NRO (Non-Resident Ordinary) account, NRE (Non-Resident External) account, or an FCNR (Foreign Currency Non-Resident) account with an Indian bank. Once this is done, you can invest in mutual funds for NRI in the following ways:

a. Self or direct

As an NRI, you can carry out transactions through normal banking channels and need to submit a mutual fund investment application with the required KYC details. Besides providing KYC documents, the bank may ask you for in-person verification at the Indian embassy in your resident country.

b. Power of Attorney (PoA)

AMCs in India also allow PoA holders to invest on your behalf and make the required mutual fund investment decisions. You can appoint someone in India to invest on your behalf.

TAXATION RULES RELATED TO INVESTING IN MUTUAL FUNDS FOR NRI

Given below are essential things you should know about mutual fund taxation related to NRI investments:

Equity Oriented Mutual Fund

● Short-Term Capital Gains (STCG) on sale of equity oriented mutual fund funds taxable @ 15% .

● Long Term Capital Gains (LTCG) exceeding Rs. 1 lakh per year are taxed at 10%. Other Than Equity Oriented Mutual Fund

●STCG for other than equity-oriented funds is taxable as per applicable slab rate.

● LTCG: If the units are held for more than 36 months, LTCG will be taxed at 20% with the indexation benefit.. LTCG from unlisted units will be taxed @ 10% without indexation.

However, w.e.f. 1 April 2023, The Finance Act 2023 has removed indexation benefit on long term capital gain for the investment made in specified mutual fund schemes. In such a case, any capital gains would be considered as short term in nature and taxed as per applicable tax rate slab of the investor irrespective of the holding period. This provision is applicable for any investments made on or after 1st April 2023.

“Specified Mutual Fund” means a Mutual Fund scheme which does not invest more than 35% in equity shares of domestic companies.

● India has signed DTAA (Double Taxation Avoidance Treaty) with 85 countries approx., generally as per DTAA provisions if Income is taxable in both the countries than a person pays tax in another country may get relief in home country.

Disclaimer:

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.