A common question that looms around in investing is: can NRIs invest in mutual funds in India? We will briefly answer this question in this blog while highlighting the rules and regulations NRIs need to follow to make informed investment decisions.
Mutual funds are one of the most sought-after investment methods not just for Indians but also for non-resident Indians (NRIs). India, the fastest-growing economy, is known for its varied investment options, which include stocks, mutual funds, debt, gold, bonds, REITs, and other essential commodities. All this attracts Non-Resident Indians to invest in the Indian market as they offer a promising avenue in their wealth-building strategy.
Furthermore, investing in India facilitates two major advantages to the NRIs, one being the potential to earn higher returns, and the other is having access to perhaps the highest-growing market in the world. This makes mutual funds an ideal investment instrument for NRIs who want to build an excellent portfolio that can deliver high returns.
Can NRIs invest in mutual funds in India?
The answer is yes. NRIs can invest in mutual funds if they abide by the FEMA (Foreign Exchange Management Act) law. As per the FEMA notification dated May 3rd, 2000, any individual with Indian citizenship who lives outside India falls under the bracket of Non-Resident Indian.
Additionally, as per the Income Tax Act 1961, a person who resides less than 120 days in India in a financial year is an NRI.
Make a note that the FEMA definition decides where NRIs can invest and the Income Tax Act decides how their gains will be taxed. Therefore, it becomes crucial to understand both definitions.
How can NRI invest in mutual funds?
As per the statistics, there were more than 2500 mutual fund schemes offered by 44 fund houses. And, many of these Asset Management Companies (AMCs) allow NRIs to put their money into mutual fund schemes from any corner of the world.
However, the majority of these AMCs prohibit investment in mutual funds in foreign currencies. Due to this, they need to open an NRE or NRO account based on their choice. Here is a brief explanation of each account:
1. Non-Resident External (NRE) Account
This account type is most suitable for those NRIs who just want to park their overseas earnings in India.
Here are the key features of the NRE account:
- With this account, NRIs can deposit money in any foreign currency and can withdraw in Indian rupees.
- Funds in an NRE account can be sent back to the NRI’s resident country without any tax on the returns earned.
- NRE accounts can be opened individually or jointly with other NRIs, OCIs, and PIOs.
2. Non-Resident Ordinary (NRO) Account
NRO account is opened in the Indian banks in the name of NRI. The prime objective of this account is to handle the Indian earnings of NRIs.
Here are the key features of NRO account:
- NRIs can open this account in the form of savings, current, term deposits, and recurring deposit accounts.
- Can receive funds in Foreign or Indian currency.
- NRIs can hold joint accounts with other NRIs or Indian residents.
- They can use this account to pay bills and access ATMs.
Once you have your NRE or NRO account opened, NRIs can start their mutual fund investment journey through any one of the two below-listed ways:
- Direct or Self:
In this mode, one can directly invest in mutual fund schemes through regular banking channels using their NRE or NRO account. However, you will need to provide KYC documents that consist of self-attested copies of Aadhar, PAN, passport, bank statements, recent photographs, and foreign residence proof.
Additionally, your bank may need an in-person verification that you can handle by paying a visit to the Indian embassy in your country.
- Through Power of Attorney:
It is just another way through which NRIs can invest in mutual funds. In this way, the renowned AMC lets PoA holders make investing decisions on behalf of NRIs. Also, you need to complete the KYC process in this method as well. Moreover, the NRI and the PoA holder both need to sign the KYC papers to be entitled to invest in mutual funds in India.
Documents needed to complete the KYC process
Listed below are the documents needed to complete the NRIs KYC process:
- Recent photographs in the specified format
- Date of Birth Proof
- Copy of valid passport
- Resident proof in the foreign country
- In-person verification in some cases
Other than the above-mentioned documents, some fund houses may also require a few supplementary documents like a signed NRI declaration form for mutual funds from their NRI investors. Therefore, it is a sensible decision to confirm the same with your selected AMC.
Why should NRIs consider mutual funds in India for wealth creation?
The thriving Indian economy lures investors from all across the globe. Here is the list of why NRIs should consider investing in Indian mutual funds in their wealth creation journey.
1. Your Portfolio at Your Fingertips: Manage Mutual Funds on the Go
Seamless management of mutual funds from anywhere across the world is one of the most sought-after benefits enjoyed by NRIs. This gives them the freedom to enjoy peace of mind.
Additionally, the growth of digital technology allows them to invest via the online mode.
Due to this, they don’t actually need to be physically present in India to take control of their funds. They can do everything online starting from deposit, portfolio evaluation, and withdrawals.
2. Availability of a range of options
Every investor has their unique financial aspirations that they want to fulfill. Therefore, there are different mutual funds investment plans in India to cater to those diversified needs.
Basically, there are three types of mutual funds for NRIs in India that are equity, debt, and hybrid funds.
You might be aware of these fund types, but for those who are interacting with these terms for the first time, let me tell you the basics of these funds. Equity ones are those who primarily invest in stocks and debt funds invest in securities, government bonds, and more. And finally, hybrid funds invest in a mix of stocks and bonds to provide a perfect balance of risk and reward.
3. Portfolio diversification
One of the most renowned benefits of mutual funds that NRIs seek through this investment method is portfolio diversification.
For those who are not aware of how mutual funds work, basically, they pool money from several investors and invest those amounts into multiple financial instruments which include equities, bonds, and government securities. Therefore, investing in mutual funds allows investors to enjoy the benefits of diversification without being present in India.
Wrapping Up
In conclusion, the Indian market of mutual funds presents a potentially worthwhile opportunity for NRI investors. To effectively navigate and invest in Indian mutual funds, NRIs need to familiarize themselves with the investment regulations, necessary documentation, and tax implications.
Additionally, while comparing mutual funds with other investment options, it is less risky and facilitates multiple benefits like diversification, greater return in the form of interest, and more. Therefore, investing in India allows NRIs to multiply their wealth and meet their financial needs seamlessly.
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