How NRIs can invest in Mutual Fund Schemes- Easier and Simpler ways explained
The Indian Markets are moving high like never before, It’s the time everyone can take advantage of investing in Growth of India. Of late Foreign Institutional Investors(FII) are pouring money in Indian markets especially after the recent election dates announcement. I am sure many of the NRIs who thinks of starting their investment journey with India are trying out many options to get started.
Here is the answer to many NRIs questions on Investing in Mutual Funds in India.
How NRIs can invest in mutual funds in India? How NRIs can redeem their mutual fund schemes? What are tax Liabilities for NRIs investing in Indian Mutual Funds? Which are the best mutual fund schemes where NRIs can invest?
Who are considered as NRIs?
Having shown interest in reading this post, I presume that you are aware of the definition of NRI. You must be aware of the below details being an NRI for investing in Mutual funds in India.
All the investments in the mutual funds have to be in Indian Rupees, NRIs cannot invest in foreign currency!
NRIs must have either NRE and NRO accounts in India.
Non-Resident External Rupee (NRE) account- Money can be deposited only through Foreign Exchanges or Foreign banks- and Money can be taken back to other countries without any hassles (repatriable).
Non-Resident Ordinary Rupee (NRO) account – it is a non-repatriable account, MOney can be deposited either by foreign funds or Local currency too. If NRI has any local income like Rentals from properties, the same can be deposited/transferred to this account.
How NRIs can invest in mutual funds in India – Simple Steps
As you may be aware, there are more than 3500 Mutual fund schemes in India to invest, and most of the NRIs are eligible to invest in all of them. Here is the step by step guide.
NRIs must have operative NRE or NRO bank account
NRI must have a bank account to get started, either NRE or NRO based on your need and preference and most importantly it is always better to have Online banking system with transactions features enabled.
NRI’s must complete KYC formalities.
To complete KYC- Know your Client formalities. NRIs must submit the duly filled form along with supporting documents of NRI to any KYC registration agency.
This is a one-time exercise, once done will be common for all Mutual fund companies and schemes.
A simple and Best way is to fill up a form for CAN from MF Utility India – One Login for most of the Mutual fund Companies.
and submit duly signed documents in Hard copy once and get KYC done for free.
I have opened CAN account from MFU when I was NRI in 2015 with minor documentation and its just one-time procedure.
Investing Procedure for NRIs in the Mutual Fund
Once you are done with MFU CAN, you would have Login details from MFU.
Follow these simple Thumb rules before investing in equity Mutual funds.
Select Best Performing Mutual funds across categories of Mutual funds. like Large cap, Multi-cap, Small cap, Midcap, Balanced Fund, etc.
You can invest amount for a few days also to get maximum gain instead of keeping in your NRE/NRO accounts. Learn about Earning high from your Idle Money in the bank here
You may like to read How To Teach Investing Habits to Children
How to redeem mutual funds?
Redemption can be done either in respective Mutual fund company website or in MFU website where you have initiated your Investment. Both works perfect.
The redemption proceeds will be credited to the respective NRE/NRO bank account of the investor which was used during investment.
During redemption of money and mutual funds units Tax will be deducted at source on the capital gains made on the investment.
What is the Tax Liability for NRI in mutual funds returns/Gains?
As you are aware, the redemption of mutual funds is subject to capital gains tax.
If the funds are redeemed within 12 months of investment, then short-term capital gain tax is applicable.
If the funds are redeemed after 12 months of investment, then long-term capital gain tax is applicable.
The tax liability for an NRI investing in mutual funds in India is the same as that of a resident Indian investor.
However, NRIs are subject to TDS, means the tax on such gains will be deducted by fund houses and paid to the government of India.
If the Indian Government has signed the Avoidance of Double Taxation Treaty (ADTT) with the country that NRI is residing then the NRI will be exempted from paying the tax two times.
For Example, India has an ADTT with US Govt. If an NRI residing in the US, makes a short-term capital gain from equity mutual fund investments in India, then that NRI pays 15% tax in India. The rate for a similar gain in the US is 30%.
So, the NRI can adjust initially paid 15% tax of India and can pay tax only for the difference in rate, that is 30-15=15%.
If NRIs are paying such tax additionally in other countries, then NRIs must consult a tax consultant before paying necessary taxes.
However, there is no tax for NRIs residing in Gulf Countries by Local Government, for gains made by investments in India hence this is not applicable for NRIs in Gulf countries. NRIs in these kinds of countries will be paying only tax applicable in India.
You may like to read How to avoid Paying Short Term Capital Gain Tax ?
Which are the best mutual funds NRIs can invest in India?
One must invest in various kinds of companies and take maximum benefits of diversification.
Choose your best Mutual fund from each of the following categories and start investing in them.
Large-cap mutual funds
Small cap funds
Multi-cap Mutual funds
Balanced Mutual funds
You may choose the best one from shortlisted funds from this post. Best Equity Mutual funds to invest now in 2019
Summary: NRIs can invest in Mutual Fund schemes in India with very simple registration formalities and one can start investing very fast. Ensure investing in Direct mutual funds to save commission by Brokers.
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Hope you enjoy reading.