Most Indians migrate abroad in search of better opportunities. Unsurprisingly, many harbor the dream of coming back one day. A majority has dependents in their home country. In such scenarios, making investments in India is inevitable.
This article deals with the oft-repeated query – can NRIs invest in mutual funds in India?
Can NRIs invest in mutual funds in India?
Certainly, NRIs can invest in mutual funds in India – as long as they adhere to the Foreign Exchange Management Act (FEMA). A mutual fund in your home country can give you a diversified portfolio with the desired mix of debt and equity securities. Even if you are risk-averse and want a fixed income investment avenue, the Indian debt market comes with higher interest rates. You may start with equity funds, debt funds or hybrid funds.
How can NRIs benefit from mutual fund investments? As one of the fastest growing economies in the world, Indian economy attracts thousands of investors from abroad. Given below are some of the benefits NRIs can enjoy by investing in Indian mutual funds.
a. Easy to manage funds online from anywhere.
With the option of investing online, it is easier to track and manage your mutual fund from the residence country too. Investors can buy, redeem, switch as well as opt for systematic transfer or withdrawals online. No need to give cheques, make DDs, fill in physical forms or even be in the same country! You will receive regular account statements (CAS) via email. Asset Management Companies also post portfolio disclosures online to keep investors informed.
b. Scope for more profits from rupee appreciation.
If the INR value has hiked on the resident country’s currency, it means more profits for the investor. For instance, if an NRI from the UK invests 1000 pounds in a mutual fund in India at an exchange rate of Rs. 100 to 1 pound. Even with possible depreciation, the investor can reap good returns. NRIs and PIOs can also get the same benefits by investing in India-based mutual funds in their own country of residence.
What is the investment procedure for NRIs in India? Asset Management Companies in India cannot accept investment in foreign currency. For this, the first step is to open an NRO account, NRE account or a Foreign Currency Non-Resident (FCNR) account with an Indian bank.
Mutual fund regulations for NRIs a. KYC for NRIs.
To complete the KYC process, submit a copy of your passport – relevant pages with name, date of birth, photo and address. The current residential proof too is must, whether temporary or permanent. Some fund houses may insist on In-Person Verification too.
b. FIRC (Remittance Certificate).
If you have made the payment via a cheque or a draft, you must attach a Foreign Inward Remittance Certificate (FIRC) with it. In case, that is not possible, a letter from the bank would also do. This confirms the source of funds.
The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes. They can also write a cheque for the same. Some banks allow to credit the redemption amount directly to the NRO/NRE account. If you have opted for non-repatriable investment, they can credit the proceeds only to an NRO account.
How are NRI mutual fund investors taxed? NRI investors often fear 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 respective country. For instance, India has signed this treaty with the US. Hence, you can claim tax relief in the US, if you have already paid taxes in India.
The gains from equity mutual funds are taxable based on the holding period. Short term capital gains attract tax at the rate of 15%. However, Long Term Capital Gains (LTCG), in excess of Rs 1 Lakh, are taxable at the rate of 10%.
In case of debt funds, Short Term Capital Gains are taxable at the rate of 30%. Holding the fund for more than three years will result in 20% tax on the gains with indexation benefit. LTCG on non-listed funds will be taxed at 10% without indexation.
Points to remember when investing in India a. Your investment carries the right of repatriation of the amount invested and amount earned, only until you remain an NRI.
b. Residential address in the resident country is a mandatory field. Hence, you must also attach an attested proof along with application.
c. The compliance requirement is the US and Canada are more stringent as compared to other nations. According to FATCA guidelines, all financial institutions must share the details of financial transactions involving a US person with the US Government.
d. Are you a resident of any of the 90 countries that have signed Common Reporting Standard? CRS is a global reporting system to combat tax evasion.