How Can NRIs Invest in Mutual Funds in India?

A straight answer to the query: Yes—NRIs can invest in mutual funds in India, as per FEMA regulations. Over the years, NRI investments in Indian mutual funds grew to almost $30 billion. This reflects growing global confidence in Indian financial instruments.

Whether you are an NRI looking to participate in India’s financial markets for wealth creation or someone planning to move abroad hoping continue your existing investments, here are the details that you must know:

Eligibility criteria for NRIs to invest in Mutual Funds
How can NRIs invest in Indian Mutual Funds?
Key rules & regulations for NRI Mutual Fund investors
Repatriation rules for NRIs
Tax Implications for NRI MF Investors

Who Qualifies To Invest In Mutual Funds As An NRI?

According to the Foreign Exchange Management Act (FEMA) guidelines, NRIs (Non-Resident Indians), OCIs (Overseas Citizens of India), and PIOs (Persons of Indian Origin) are eligible to invest in Indian mutual funds.

To invest in Indian mutual funds, NRIs must:

Update Residency Status: Inform the fund house about their NRI status.
Complete KYC Formalities: Submit necessary documents, including pan, passport, visa, overseas address proof, and a recent photograph.
Open NRE/NRO Account: NRIs cannot invest in mutual funds in a foreign currency. They must have a rupee-denominated account. Investments have be routed through Non-resident External (NRE) or Non-resident Ordinary (NRO) accounts.
Check Country-specific Restrictions: Some Asset Management Companies (AMCs) may have restrictions based on the NRI investor's country of residence (such as US/Canada) due to regulatory requirements, as they may not be FATCA/CRS compliant.

Mutual Fund Investment Process for NRIs

The most common ways of investment are:

Self-Investment via NRE/NRO account
Power of Attorney (PoA) authorising someone in India to invest on your behalf

However, it is worth noting that the signatures of both the NRI investor and the PoA have to be on the KYC documents.

When opting for direct investment, the process of investing in mutual funds in India is simple for an NRI:

Account Setup: Open an NRE or NRO bank account with Kotak Mahindra Bank. An NRE account is best for those who wish to remit their foreign earnings to India. NRO account, on the other hand, is best for NRIs looking to deposit their earnings in India.
KYC Compliance: Complete the Know Your Customer (KYC) process through SEBI-registered intermediaries.
Select Mutual Funds: Choose mutual fund schemes that align with investment goals. For instance, NRIs can choose from a wide range of Mutual Fund schemes tailored for various risk appetites. They can pick from debt to hybrid to equity funds.
Repatriation: Investments through NRE accounts are fully repatriable, while those through NRO accounts have repatriation limits.

For instance, Sarah, an NRI in Dubai, wants to diversify her portfolio. She opens a Kotak NRE savings account online. Selects Multicap Fund through the Kotak MF platform. She then monitors her investment using Kotak’s mobile app.

Tax Implications for NRI MF Investors

The income earned from NRI investment plans, including mutual funds, is taxable in India. Here’s a quick view of the details:

Fund Type	Holding Period	Tax Type	NRI Taxation
Equity Fund	< 1 year	STCG	TDS @ 20% + cess
Equity Fund	> 1 year	LTCG	TDS @ 12.50% + cess
Debt Fund	Any duration	Slab Rate	TDS @ 30% + cess

Through the mutual fund platforms, NRIs can also invest in Tax Saver ELSS Mutual Funds, which are not only eligible under Section 80C but are also an efficient entry point for NRIs new to the Indian markets.

Additionally, it's essential for NRIs to check if their country has a Double Taxation Avoidance Agreement (DTAA) with India. They must understand the specific provisions to maximize tax benefits.

Wrapping Up

Mutual funds in India can be a good option in NRI investment plans. With clear regulatory frameworks and supportive services from institutions like Kotak Mahindra Bank, NRIs can confidently invest in India's growing market. Explore the numerous plans available and pick the one that best aligns with your risk appetite.

FAQs

Q1. What documents are needed for NRI mutual fund investment?

As an NRI, you will be required to submit the following documents for mutual fund investment in India:

Passport
Visa
Indian address proof
Foreign address proof
PAN
Passport-size photograph
Bank account details

Q2. Can NRIs invest in mutual funds using a foreign bank account?

No, the application will be rejected if you submit your foreign bank account details. An NRE or NRO account is a must for mutual fund investment.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.