Non Residents Indians (NRIs) can benefit from a growing home economy by investing in mutual fund schemes in India. In case of NRI Investment in Indian Mutual Funds no special approval is to be sought from authorities such as the RBI. They can invest in mutual funds on repatriable basis or non-repatriable basis.
To invest on a repatriable basis you must have an NRE bank account. Money in such accounts can be converted back to a foreign currency. NRO bank accounts, on the other hand, are accounts that hold non-repatriable money. Money in NRO accounts will stay as Indian rupees and cannot be readily converted back.
Note: This space is evolving fast and new rules and processes are being made and amended daily. In all likelihood, some of the rules may have been relaxed further since the date of publication of this article.
For example – Currently, some mutual fund houses accept only lumpsum investments from U.S. NRI investors (since in accordance with the current U.S. law, physical presence of the investor is required while making an investment) while there are certain fund houses which even allow SIPs from NRI investors (on the assumption that giving an instruction to invest via SIPs while being physically present in India suffices as ‘investment made while in India’).Over the next few months we expect all fund houses to start accepting both lumpsum and SIP investments from NRI investors in the U.S.”
 U.S. based NRIs – If you are a U.S. or Canada based NRI, most of the mutual funds in India traditionally did not accept investments from you. This had more to do with U.S. Securities law regime and not because of Indian law. Currently there are few mutual fund houses who have started accepting investments from U.S. and Canada based NRIs. These are:
- Birla Sun Life Mutual Fund
- DHFL Pramerica Mutual Fund
- L & T Mutual Fund
- PPFAS Mutual Fund
- Sundaram Mutual Fund
- UTI Mutual Fund
- DSP BlackRock
- ICICI Prudential Mutual Funds
Note again: As mentioned above, within the fund houses mentioned above, most of them so far only accept lumpsum investment from U.S. based NRIs.
 NRIs from all other countries – NRIs from other countries can invest in almost any scheme of any mutual fund in India. There can be some restrictions specific to a fund house but that would be rare. So, if you are an NRI from the Middle East, Singapore, HongKong, U.K. or Europe, you are free to invest in any mutual fund scheme subject to the necessary documentation. This applies to both, lumpsum and SIP investments.
What is the Documentation Required For NRI Investment in Indian Mutual Funds?
For an NRIs the procedure of applying in a mutual fund is similar to the one followed by residents. NRI investor must be KYC (know your customer) compliant. Following documents will be required to complete KYC formalities.
- KYC form
- Self attested copy of PAN
- Self attested copy of Passport
- Address proof of both your Indian and overseas residence
- Passport size photograph – 1
- Bank account details and a check (cancelled or of investment amount)
Note – If the person is KYC complaint in India, then he needs to provide Modified KYC form.
Furthermore, NRI investors are also required to have completed In-person verification (IPV) as part of the KYC process. Once the IPV and required document verification are completed, forward the KYC form along with the above documents to the fund house to complete the KYC process.
Note – all this can be done online (read E-KYC below)
eKYC or Electronic KYC is a KYC compliance procedure that allows you to complete your KYC formalities completely online, without any paperwork whatsoever. E-KYC is a simplified KYC for mutual fund investments based on PAN and Bank A/c no. details.
After, all the KYC formalities are done, you need to submit completed application form of respective fund house. Usual facilities like nomination, appointing Power of Attorney is available for NRI investors as well.
Can NRI Invest In Foreign Currency?
An NRI cannot make investment in foreign currency. For mutual fund investment you need to give a rupee cheque from your NRE/NRO bank account. You may also send a rupee cheque from abroad payable in a bank in India. However, for an NRI to invest, it is mandatory that he maintains a bank account in India.
Taxation of Mutual Fund Investment by NRI
Typically – your investments will be tax free in India, if the investment is held for a certain duration. Please read below for clarity.
The tax liabilities are the same as that of a Resident,the only difference being that in case of NRIs,tax is deducted at source(TDS). Accordingly:
For equity mutual fund schemes when the fund is held for less than one year, the profits are taxed as Short Term Capital Gain (STCG) and are taxed @15%; if holding period is more than one year the profits are considered Long Term Capital Gain (LTCG) and are tax free in the hands of the investor.
For debt mutual fund schemes when funds are held for less than 3 years (i.e. 36 months) the profits are included in the income of the investor and are taxed as per the slab in which the investor belongs (i.e. there is no lesser taxation in case of STCG for debt funds).
LTCG are liable to tax subject to benefit of indexation. If investor takes the benefit of benefit of indexation then profits are taxed @20% of capital gains after indexations +3% education cess.
|Equity Mutual funds||Debt Funds|
|STCG||Taxable @ 15%||Taxable as per Income tax slab rate|
|LTCG||Tax Free||Taxable @ 10% without indexation or 20% with indexation|
For more on Taxation, read – Taxation of PMS and Mutual Fund Schemes
What the TDS on NRI investments into indian mutual funds in case of SCG and LCG