NRIs are allowed to invest in mutual funds in India – as long as they adhere to the rules of the Foreign Exchange Management Act (FEMA). However, some AMCs do not accept mutual fund applications from NRIs in Canada and the USA.
You may start with equity funds, debt funds, or hybrid funds depending on your investment objectives and risk tolerance. Moreover, you have a plethora of options and you may choose the right mutual funds depending on your investment horizon.
Asset management companies in India are not allowed to accept investments in foreign currencies. Hence, the first step to investing in the Indian mutual funds is to open an NRO account, NRE account, or a Foreign Currency Non-Resident (FCNR) account with an Indian bank. You can invest by any of the below methods.
Your mutual fund application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include the latest photograph, attested copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification, which you can comply with by visiting the Indian Embassy in your resident country.
Another popular method is to have someone else invest on your behalf. AMCs allow the power of attorney (PoA) holders to invest on your behalf and also make investment decisions. However, signatures of both the NRI investor and PoA holder must be present on the KYC documents if you seek to invest in mutual funds in India.
To complete the KYC process, you must submit a copy of your passport – relevant pages with name, date of birth, photo, and address. Providing the current residential proof is a must, whether temporary or permanent. Some fund houses may insist on in-person verification.
If you have made the payment via a cheque or a demand draft, then you must attach a foreign inward remittance certificate (FIRC). In case that is not possible, then a letter from the bank would also be accepted. This confirms the source of funds.
The AMC will credit the corpus (investment + gains) you get when you redeem your mutual fund units to your bank account after deducting applicable taxes if any.
Some banks allow crediting of the redemption amount directly to the NRO/NRE account. If you have opted for non-repatriable investment, then they can credit the proceeds only to an NRO account.
NRI investors often worry that they will have to pay double tax when they invest in India. Well, that is certainly not the case if India has signed the Double Taxation Avoidance Treaty (DTAA) with the country of your residence. Tax for NRI Investors are same as per Indian resident investors.
