Can NRIs Invest in Mutual Funds in India

Investing in mutual funds is a method to grow your wealth. As an NRI (Non-Resident Indian), you might wonder if you can invest in Indian mutual funds and how to go about it. The good news is that NRIs can invest in mutual funds in India, and the process is quite straightforward. 

This guide will take you through the steps NRIs need to be aware of investing in mutual funds, discuss the taxation aspects, and list fund houses that accept NRI investments.

Can NRIs Invest in Mutual Funds?

Yes, NRIs (Non-Resident Indians) can invest in mutual funds in India. It is a great way for NRIs to grow their wealth and benefit from India’s growing economy. Here is how it works:

First, NRIs need to have a specific type of bank account. There are two main types of accounts: NRE (Non-Resident External) and NRO (Non-Resident Ordinary). 

Both of these accounts allow NRIs to invest in mutual funds, but they serve different purposes. An NRE account is for funds that are earned abroad and can be repatriated (sent back) to a foreign country. An NRO account is for income earned in India, like rent or pension, and it has limited repatriation.

Next, NRIs must complete the KYC (Know Your Customer) process. This is a standard procedure where you submit documents like your passport, visa, and proof of address. This step is necessary to verify your identity and ensure compliance with regulations.

Once the KYC process is complete, NRIs can choose mutual funds to invest in.

How Can NRIs Invest in Mutual Funds?

Following the step-by-step process makes the investment journey smooth and hassle-free.

Step 1: Open an NRI Account

• NRIs need to open a special bank account to invest in mutual funds.There are two types of accounts you can open: NRE (Non-Resident External) or NRO (Non-Resident Ordinary). 
• An NRE account allows you to park your foreign earnings in India without any tax on interest earned, and the money can be repatriated (sent back) to your foreign country.
• An NRO account is utilized to handle income generated in India, such as rent or pension. Although the interest earned is taxable, it helps in managing Indian income. You can open these accounts with any major Indian bank.

Step 2: Complete KYC (Know Your Customer) Process 

• After opening an NRI account, the next step is to complete the KYC (Know Your Customer) process. This is a mandatory step where you provide proof of your identity and address. 
• It is necessary to submit documents like your passport, visa, and proof of overseas and Indian addresses. Some banks and financial institutions also require a photograph and a completed KYC form. 
• This process helps in verifying your identity and ensuring that all investments are legally compliant. Once your KYC is verified, you are eligible to invest in mutual funds in India.

Step 3: Choose the Right Mutual Fund

• Now that you have your NRI account and have completed the KYC process, it’s time to choose the right mutual funds.
• Start by identifying your financial goals, such as saving for retirement, buying a house, or funding your child’s education. 
• Next, consider your risk appetite – how much risk are you willing to take with your investments? Mutual funds range from high-risk equity funds to low-risk debt funds.
• Finally, think about your investment horizon – how long you plan to invest. These factors will help you choose the best mutual funds.

Step 4: Invest Through a Fund House or Broker 

• There are two ways to invest: directly through the mutual fund’s website or via a registered broker. 
• Investing directly through the fund house’s website can be cost-effective as it usually has lower fees. Alternatively, using a broker can provide professional advice and help you navigate the investment process more easily. 
• Many brokers offer online platforms where you can view and manage your investments conveniently. Choose the method that works best for you and start investing your money in the selected mutual funds.

Step 5: Monitor Your Investments

• After investing in mutual funds, it’s crucial to monitor their performance regularly. Compare your investments to your financial goals. 
• Most mutual funds provide regular updates through emails or their websites, showing how the fund is performing. 
• Make adjustments to your portfolio if needed, such as switching funds if they are not performing well or if your financial goals change. 
• Monitoring your investments helps ensure that you stay on track to meet your financial objectives.

List of Fund Houses that Accept Investments from NRIs 

Taxation for NRIs

Understanding the tax implications given below is important for NRIs to make better investment decisions and optimise their returns.

Tax on Short-Term Capital Gains (STCG)

• Equity Funds:
  • STCG on equity funds is taxed at a flat rate of 15%.
  • This means if you sell your equity mutual fund units within 12 months of purchase, you will pay 15% tax on the profits.
• Debt Funds:
  • STCG on debt funds is treated differently.
  • The gains are included in your total income and taxed based on your applicable income tax slab.
  • For example, if you are in the 30% tax bracket, your short-term gains from debt funds will be taxed at 30%.
  • This applies if you sell your debt mutual fund units within 36 months of purchase.

Tax on Long-Term Capital Gains (LTCG)

• Equity Funds:
  • LTCG on equity funds is tax-free up to INR 1 lakh per financial year.
  • If your long-term gains exceed INR 1 lakh, the excess amount is taxed at 10%.
  • For example, if your gains are INR 1.5 lakh, you will pay 10% tax on INR 50,000.
  • This tax applies if you sell your equity mutual fund units after holding them for more than 12 months.
• Debt Funds:
  • LTCG on debt funds is subject to a 20% tax with the advantage of indexation benefits.
  • Indexation helps in adjusting the purchase price with inflation, reducing your overall tax liability.
  • For example, if you bought debt fund units for INR 1 lakh and sold them for INR 1.5 lakh after four years, indexation will adjust the purchase price to reflect inflation, and you will pay 20% tax on the adjusted gain.
  • This tax applies if you sell your debt mutual fund units after holding them for more than 36 months.

Conclusion 

Investing in mutual funds as an NRI is a smart way to grow your wealth in India. You can easily follow the process and start investing by following the steps outlined. Remember to stay informed about the taxation rules to optimise your returns. 

With the right approach, mutual fund investments help to achieve your financial aims and secure your future. If you have any questions, feel free to refer to the FAQs section below

FAQs