Can NRIs Invest in Mutual Funds in India

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Key Takeaways

• NRI investment in mutual funds is allowed in India under FEMA regulations.
• Mutual funds for NRI can be accessed through NRE or NRO bank accounts.
• Taxation applies on earnings, making it important to evaluate NRI investment options in India carefully.
• The process requires KYC compliance and adherence to RBI guidelines.

When you think of investments, the focus is usually on earnings through dividends, returns, or capital appreciation. At the same time, any income is often subject to taxation.
Many Indians residing overseas seeks to diversify their portfolio by including Indian assets. A common question that arises is, can NRI invest in mutual fund schemes in India. The answer is yes, provided the investments are made in accordance with the Foreign Exchange Management Act (FEMA).

It is also essential to understand who qualifies as an NRI under FEMA. As per the Act, an NRI is a person who resides outside India and holds Indian citizenship.

How Can NRIs Invest in Mutual Funds?

Follow these steps for NRI investment in mutual funds in India:

Step 1: Open an NRI Savings Account

• Options include NRE, NRO, or FCNR account.
• NRE and FCNR accounts allow full repatriation, while NRO is non repatriable.

Step 2: Complete KYC requirements

• Provide a recent photograph, PAN card, passport, proof of overseas address, and bank statement.
• In-person verification may be required at the Indian Embassy.

Step 3: Submit the mutual fund application

• Fill in the application form and complete the required declarations.

Step 4: Select the mode of investment

• You may invest directly or through a Power of Attorney, who must also complete KYC.
• SIP investment for NRI is a preferred method for disciplined wealth creation.

Step 5: Make Deposits

• Payments must be made via cheque drawn on your NRI account.

Step 6: Comply with FATCA and CRS regulations

• FATCA: Mandatory for US citizens, Green Card holders, or US tax residents. Requires declaration and submission of the US Tax Identification Number (TIN).
• CRS: Applicable to NRIs from other countries, requiring a tax residency declaration.

Note: An NRI Savings Account is essential for investment and provides the banking framework needed to manage transactions in mutual funds.

Also Read Everything About: Mutual Funds for NRIs

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Taxation of NRI investments in mutual funds

NRIs investing in Indian mutual funds are subject to taxation at the time of redemption. While capital gains tax rules for resident Indians generally apply, NRIs are required to pay tax deducted at source (TDS) on redemption. Understanding these tax implications is important when planning NRI investment options in India, including lump sum investments or SIP for NRI.

To provide a clear overview, the following table summarises the applicable tax rates and TDS deductions for different types of NRI mutual fund investments:

Key Points on Taxation

• TDS on Redemption: Tax is deducted at source on the redemption of NRI mutual fund units. The rate depends on the type of fund and holding period.
• TDS Certificates: Fund houses provide quarterly digitally signed TDS certificates detailing deductions.
• Dividends: Dividend income from NRI mutual fund investments is taxable; TDS is deducted at the applicable rate or as per DTAA provisions.
• FATCA/CRS Compliance:
• US NRIs must submit FATCA declaration and US Tax Identification Number (TIN).
• NRIs from other countries may need to submit CRS declarations.
• Record Keeping: Maintain mutual fund statements and TDS certificates for filing Indian tax returns.
• SIP for NRI: Systematic Investment Plans are treated the same as lump sum investments for taxation; TDS applies at redemption.

Claiming DTAA Relief for NRIs

To avoid double taxation on NRI mutual fund earnings, NRIs can follow these steps under the DTAA framework:

• Confirm India has a DTAA with your country of residence.
• Submit Form 10F and a Tax Residency Certificate (TRC).
• TDS may be reduced as per DTAA provisions.
• Claim any excess TDS refund while filing your Indian tax return.
• Keep mutual fund statements and TDS certificates for reference.

Documents Required for NRI MF Investments in India

NRIs planning to invest in Indian mutual funds must complete KYC formalities and submit specific documents. These are essential for account opening, compliance, and smooth processing of investments.

Required Documents:

Proof of Identity

• Passport (mandatory for NRIs)
• PAN card (Permanent Account Number)

Proof of Overseas Address

• Utility bills, bank statements, or residence certificate issued in the country of residence

Photograph

• Recent passport-size photograph

Bank Account Proof

• NRI Savings Account details (NRE/NRO/FCNR account)
• Cancelled cheque or bank statement for linking mutual fund investments

FATCA/CRS Declarations

• FATCA form for US NRIs
• CRS declaration for NRIs from other countries, if applicable

Power of Attorney (if applicable)

• Required if someone else is authorised to operate or invest on your behalf

Additional Documents

• Any other documents requested by the mutual fund house for KYC verification or regulatory compliance

Benefits for Investing in Mutual Funds for NRIs (In Pointers)

Investing in mutual funds for NRIs offers several advantages that help in wealth creation and portfolio management:

Diversification of Portfolio

• Access a mix of equity, debt, hybrid, and international funds to spread risk.

Professional Fund Management

• Experienced fund managers handle investment decisions on your behalf.

Liquidity

• Most mutual funds offer easy redemption, providing quick access to funds when needed.

Flexibility in Investment Options

• Invest via lump sum or SIP for NRI according to your financial planning.

Access to NRI Investment Options in India

• Enables you to diversify your overseas portfolio with Indian assets.

Potential for Higher Returns

• Equity and hybrid funds can offer long-term capital growth compared to traditional savings instruments.

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Final Note

For NRIs exploring mutual fund investments in India, there is a wide range of schemes to choose from, spanning equity, debt, and hybrid options. While completing KYC and account formalities is essential, these steps ensure a smooth and compliant investment experience.

Having an NRI Savings Account with DBS Treasures allows you to seamlessly manage your investments, make easy fund transfers, and enjoy a host of banking and investment services tailored for NRIs.

*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.