Can NRIs Invest In Mutual Funds​?

NRIs can invest in mutual funds in India, subject to FEMA, KYC, and other applicable regulatory requirements. Investments are generally made through NRE or NRO accounts and may be repatriable or non-repatriable. NRIs should also check the AMC’s country-specific restrictions, taxation and TDS rules, FATCA/CRS requirements, and applicable DTAA benefits before investing. 

Many NRIs may be living abroad but still want to participate in the growth of the Indian economy through mutual funds. This naturally raises the question: can NRIs invest in mutual funds in India? 

This article breaks down all the things you need to know about NRI investment in mutual funds in detail. 

NRIs can invest in mutual funds in India. All NRI investments in mutual funds have to adhere to the rules of the FEMA (Foreign Exchange Management Act) and other key regulations. NRI investments in mutual funds are permitted on both a repatriation and non-repatriation basis. 

NRIs can choose to invest individually, with other NRIs, or jointly with residents. They may also appoint a Power of Attorney to invest on their behalf - provided all the KYC and regulatory requirements are met. 

Now you know that NRIs are allowed to invest in mutual funds in India. But how do they go about the process? Here’s an easy step-by-step guide that outlines the process of NRI investment in mutual funds in India:

Step 1: Open an NRO/NRE Account

Firstly, NRIs cannot make mutual fund investments in India directly from their foreign bank accounts. This means they need to have either a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account with an Indian bank to start MF investing. The account you use also determines the repatriation treatment of your investment proceeds.

Please note:

• NRE Account: Funds held in an NRE account are repatriable, meaning they can generally be transferred abroad, subject to applicable FEMA rules.
• NRO Account: NRO funds are generally not freely repatriable. NRIs can remit up to USD 1 million per financial year (April to March) from NRO balances along with other eligible assets, subject to applicable taxes, documentation, and regulatory conditions.

Step 2: Complete Your KYC

Just like resident investors, NRIs also need to complete their KYC before investing in mutual funds. NRIs may have to submit these documents for KYC compliance:

• Self-attested copies of the passport
• PAN Card
• Overseas address proof
• Photograph
• Bank account details

AMCs may also require in-person/video KYC verification for NRIs.  

Step 3: Select A Mutual Fund Scheme

Can NRIs invest in mutual funds in India? Yes. But, can they invest in all mutual fund schemes? No. While NRIs from most countries can invest in equity, debt, and other schemes in India, specific restrictions do apply based on their country of residence and AMC policies. 

For instance, many Indian AMCs choose not to accept investments from US and Canada-based NRIs. This is due to the strict FATCA and CRS reporting rules. Therefore, you need to see which AMCs actually allow NRI investments in mutual funds and select a suitable scheme accordingly. 

Once you’ve picked a scheme, you can invest through lump-sum deposits or choose systematic options like SIP, STP, and SWP.

While NRIs can invest in mutual funds in India, there are a few things they have to keep in mind:

1. Eligibility

To make NRI investments in mutual funds, you should qualify as an NRI under FEMA. Under FEMA, an Indian citizen may become a person resident outside India when leaving India:

• For employment outside India
• For carrying on a business or vocation outside India
• For any other purpose that indicates an intention to stay outside India for an uncertain period

FEMA residential status therefore considers the purpose and intention of your stay, rather than relying only on the number of days spent in or outside India.

For income-tax purposes, residential status is determined separately, mainly based on the number of days spent in India.

2. Regulatory Compliance

NRIs should also ensure that: 

• Their residential status is correctly updated in the KYC documents and with the fund house before making the investment.
• FATCA and other regulatory declarations are accurately completed.
• All transactions are made using NRE/NRO accounts.

As mentioned earlier, NRIs from the US and Canada may face additional compliance rules. Fund houses that accept NRI investments in mutual funds from these countries may need additional documentations and prefer offline submissions. 

Plus, you should also check if you’re a resident of any of the countries that have signed the CRS Multilateral Competent Authority Agreement to implement the Common Reporting Standard for automatic financial data exchange. 

3. Taxation

Any income earned from MF investments is taxable in India. NRI investments in mutual funds are taxed in the same way as resident Indian investments. This means tax depends on the type of fund and the holding period. TDS is deducted at source on payments made to NRIs.

Here’s a breakdown of taxation rules for NRI investments in mutual funds:

* Holding period for transfers before 23 July 2024 is 36 months, while for transfers on or after 23 July 2024, it is 24 months.

** STCG rate for equity-oriented mutual fund transfers before 23 July 2024 is 15%, while for transfers on or after 23 July 2024, it is 20%.

4. DTAA Benefits 

NRIs may also be able to use the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to avoid being taxed twice on the same income. Subject to the applicable treaty and documentation requirements, including a Tax Residency Certificate (TRC), an NRI may be able to:

• Claim a foreign tax credit in their country of residence for eligible taxes paid in India.
• Claim a beneficial tax rate or treatment under the DTAA, where applicable and subject to the specific treaty provisions.

5. Appointing a POA

As an NRI, you can choose to invest directly or via a person whose appointed as your POA. 

The POA can invest in mutual funds on your behalf. If you choose to appoint a POA, it should be done as per the rules of the AMC and should be KYC-compliant. 

For anyone wondering ‘can NRIs invest in mutual funds in India’, the answer is a univocal yes. However, there are certain things NRIs have to keep in mind:

• Invest through NRE/NRO accounts.
• Be KYC-compliant.
• Invest in funds that accept NRI investments. 

Apart from that, NRIs also need to check eligibility, taxation rules, and whether a DTAA treaty exists with their country of residence before investing. 

1. Are NRIs allowed to invest in mutual funds in India?

Yes, NRIs can invest in Indian mutual funds, but they have to adhere to various regulatory requirements under FEMA and other laws. They must also be KYC-compliant and have an Indian Rupee account to invest.

2. Can I continue mutual fund SIPs after attaining NRI status?

Yes, absolutely. You can continue the SIPs you had started as a resident Indian. Just update your residential status, KYC details, and NRO/NRE account details with your broker/AMC.

3. Do I have to pay tax again in the home country for mutual fund gains made in India?

It depends on the tax laws of your country of residence and the applicable DTAA with India. Where treaty provisions allow, you may be able to claim credit in your country of residence for eligible tax paid in India, helping avoid double taxation. 

4. Is money invested through NRE accounts taxable?

While the interest earned on NRE accounts is tax-free, the capital gains from MF investments made through NRE accounts are taxable as per the applicable rules.

5. How do I redeem my NRI investment in mutual funds?

You can place a redemption request using your investment platform/broker online. The proceeds of your NRI investment in mutual funds (minus TDS) will be credited to the linked NRO/NRE account.

6. What is FATCA?

FATCA is the Foreign Account Tax Compliance Act that requires Indian fund houses to report investment details of US citizens and residents to the US tax authorities. This results in:

• Additional paperwork and documentations
• Limitations on AMC choices
• Possible need to be physically present in India to make the investment

An Investor Education and Awareness Initiative by Tata Mutual Fund . 

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This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.