Mutual Fund Investment for NRIs in India

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Mutual Fund Investment for NRIs in India

Mutual Fund Investment for NRIs in India

Despite the recent demonetization in November 2016, India has managed to keep its GDP growth rate above 7% and is one of the fastest growing economies in the world. According to recent IMF data, India is expected to overtake Germany by 2022 and Japan by 2030 and thus people from all walks are investing their money in the growth potential of Indian Economy. Investors are nowadays showing increasing interest in Mutual Fund market of India, apart from the traditional investment options such as FDs, PPFs, Real Estate, Gold etc, The popularity of Mutual Fund is clearly evident from the increase of Assets Under Management (AUM) which rose from Rs. 7.01 lakh crore as on 31st March 2013 to Rs. 21.36 lakh crores as on 31st March 2018 i.e. more than three-fold increase in a span of 5 years (Source:- AMFI).There are lots of Mutual Fund Houses operating in the country with a lot larger number of schemes to suit the investment goals of every investor with varying degree of risk and reward.

In this article, we are discussing whether NRIs/PIOs (Non-Resident Indian/Person of Indian Origin) can make an investment in Indian Mutual Fund and if yes, what are the additional requirements they need to comply?

In general, NRIs/PIOs can invest in mutual funds in Indian Currency through one of the following bank accounts in an Indian Bank:

  • Non-Resident (External) Rupee (NRE) accounts: Rupee accounts from which funds are freely repatriable.
  • Non-resident Ordinary Rupee (NRO) accounts: Rupee accounts from which funds are non-repatriable.
  • Foreign Currency Non Resident(FCNR): Similar to the NRE account except that the funds are held in permitted foreign currency like USD, GBP, JPY, EUR, CAD and AUD and that it can be opened only in the form of term deposits with a maturity of up to five years.

However, not all Mutual Fund Houses accept investments from NRIs residing in the US and Canada due to additional and complicated requirements under Foreign Account Tax Compliance Act (FATCA). Under FATCA, it is compulsory for all financial institutions to share the details involving US residents with the US Government with the intent to avoid tax evasion by US residents. For Investors, other than residing in US and Canada, the process for investing in the mutual fund is similar as it is for Indian Investors.

Registered Power of Attorney (POA) holder can also invest in a mutual fund on behalf of the NRI/PIO investors and sign documents for purchase (initial as well as additional), sale and redemptions. While purchasing units, POA holder needs to submit the original POA or a duly notarized copy. The POA should contain the signature of both the first holder and the POA holder.

Investors have to complete the common application form along with Rupee cheque or Rupee draft and all required KYC documents including PAN, Passport, Aadhaar, Address Proof (Indian and overseas), Photograph. NRI investors from US and Canada also need to submit FATCA-CRS declaration form. Some Mutual Fund Houses provide the facility of an online application while others accept physical applications only. If the investor chooses to invest through Rupee draft/Bankers cheque, then one of the following documents also need to be submitted:

  • A Foreign Inward Remittance Certificate (FIRC) or
  • Confirmation letter issued by the bank confirming the source of funds or
  • A photocopy of the Rupee draft/Banker’s cheque

The fund houses accepting investments from NRIs residing in USA and Canada include:

  1. Birla Sun Life Mutual Fund
  2. Reliance Mutual Fund
  3. SBI Mutual Fund
  4. UTI Mutual Fund
  5. ICICI Prudential Mutual Fund
  6. DHFL Pramerica Mutual Fund
  7. PPFAS Mutual Fund
  8. Sundaram Mutual Fund
  9. L&T Mutual Fund


The next thing which investors need to know is the tax treatment on the return of the investment. The rate of taxation would depend on the type of mutual fund and the tenure of investment. The tax rate for FY 2018-19 can be summarized as below:

  1. Capital Gain Taxation
    1. Equity Oriented Schemes:
      1. Long term capital gains (on units held for more than 12 months) :- 10%
      2. Short term capital gains(on units held for 12 months or less):-15%
    2. Other than Equity Oriented Schemes:
      1. Long term capital gains (on units held for more than 36 months) :- 20% (Listed) & 10% (Unlisted)
      2. Short term capital gains(on units held for 36 months or less) :-30%

    Note: - Tax on long term capital gains will be levied if the amount exceeds Rs. 1lakh.

  2. Tax on Dividend
    1. Equity and Debt Oriented Schemes:- NIL
  3. Tax on Distributed Income-Dividend Distribution Tax (DDT)(Paid by Mutual Fund)
    1. Equity Oriented Schemes:- 10% + 12% surcharge +4% cess= 11.648% effectively
    2. Debt Schemes(Other than Infrastructure debt fund):- 25% + 12% surcharge +4% cess= 29.12% effectively
    3. Infrastructure debt fund:- 5% + 12% surcharge +4% cess=5.824% effectively
  4. Tax Deducted at Source (TDS)
    1. Equity Oriented Schemes
      1. Short term capital gains:- 15%
      2. Long term capital gains:- 10%
    2. Other than Equity Oriented Schemes
      1. Short Term Capital gains:- 30%
      2. Long term Capital gains:- 10% (Unlisted)/ 20% (Listed)

The income generated on mutual fund investment in India may also be taxable in the country of residence of NRI/PIO and need to be consulted with the income tax advisors of the respective country to ensure proper compliance with the tax laws. India has signed Double Tax Avoidance Agreement (DTAA) with some countries to avoid double taxation on the income earned in the source country and residence country.

Final thought

Thus, as an Indian staying abroad, if you want to take advantage of the growth in the home country, mutual funds are easy and hassle free way of investment by diversifying the portfolio across different segments and sectors of the market. The basic process to start investing in Mutual Fund is to complete KYC process with the required document or someone else invest on your behalf via PoA mode. If you like to start Mutual Fund Investment in India, please leave your contact information here.

Last updated on 7th Jun 2018



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