Can NRI Invest in Mutual Funds?
Non-resident Indians are known to be keen investors in the Indian financial market. They have access to the market information, have a reasonable understanding of the domestic environment, and perhaps, even an affinity towards plowing money back to their homeland. NRIs can invest in mutual funds online in India; however, the process of doing it differs from that for an Indian citizen.
Process of investment
NRIs looking to invest in mutual funds in India must adhere to the Foreign Exchange Management Act rules.
Indian asset management companies cannot accept foreign currency payments. Therefore, the NRI must open a Non-resident External Account (NRE), Non-resident Ordinary Account (NRO), or a Foreign Currency Non-Resident Account (FCNR).
Investment can be made in your name or through a power of attorney. When made in your name, KYC documents include photographs, PAN card, passport, overseas address proof, and bank statement. If in-person verification is required, it can be done by visiting the Indian embassy of your country.
If invested through a power of attorney, the signature of both the PoA holder and the NRI investor must be provided in the KYC documents.
While making a cheque or demand draft payment of the SIP, the NRI investor has to provide a Foreign Inward Remittance Certificate (FIRC) or a letter from the bank confirming the source of funds.
Foreign Account Tax Compliance Act (FATCA) guidelines require that all financial institutions must disclose details of financial transactions by a US-based person to the USA government. As a result, fund houses are observed to be less keen on accepting funds from an NRI living in the USA or Canada.
Rules on redemption
The right of repatriation of the investment made and profit earned by the NRI investor is applicable as long as they remain an NRI. Upon redemption of the investment, the asset management company credits the accumulated amount to the NRI investor’s NRO/NRE bank account. However, if you selected a non-repatriable investment, the payment will be made to an NRO account only.
Taxes, as applicable, are deducted from this payment.
The possibility of being taxed in India and the residing country could be a concern for an NRI investor. However, if you reside in a country that has signed a Double Taxation Avoidance Agreement with India, you are not likely to be taxed twice.
In India, the short-term capital gains tax on equity-oriented mutual funds is 15%. If held for over a year, a long-term capital gain is charged without indexation benefits; the tax rate is 10%. Short-term capital gain on debt mutual funds is taxed as per the income slab. If held for more than three years, long-term capital gain tax on such funds will be 20%. The benefit of indexation will also be available.
If you are looking for mutual funds options in India, online investment apps, such as Tata Capital Moneyfy App, are a good place to start. With such apps, you can invest in mutual funds online and participate in the growth journey of India.