A comprehensive guide for NRI investing in Mutual Funds

Living in abroad country doesn’t mean that a person cannot invest in mutual funds. They can easily invest in Indian mutual funds. Non-Resident Indian investors can opt for different kinds of investments including but not restricted mutual funds. They need to adhere to the FEMA ( Foreign Exchange Management Act ). A home country can offer one with diversifies a portfolio with a blend of debt and equity securities. Also, the Indian debt market rises with high-interest rates. If one is risk-averse and needs a fixed amount of investment. One can easily start investments with equity mutual funds, debt funds. Moreover, value-added services like Adjustable Investment Plan like SIP is available as an investment option for the NRI.

Important terms in NRI Investments 

• NRE Account: NRE is a Non-Resident External Rupee Account. It is a rupee account from which the funds are easily repatriable. From this, account the money can be sent back to the country of your home country. This account can be started with money from abroad or local funds. The funds can be in the form of Fixed deposits, savings, current or recurring deposits.
  One must deposit their foreign currency in this account. In this account, no Indian Rupees are deposited and only in foreign currency, the deposits are accessible.
• NRO Account: NRO is a Non-Resident Ordinary Rupee Account. It is an account that can be open with funds that are generated in India or remitted from abroad. The amount in this fund is non-repatriable. This account helps the NRIs to maintain their income earned in India. It can be as rent, dividends, or pension from abroad. So, it is rated a good way to save and maintain your accumulated Rupee funds. Once you deposit the funds to your NRO account, that foreign currency is automatically switched to INR. Any NRI can open an NRO account.
• FCNR Account – FCNR means Foreign Currency Non-Resident Account (Banks) Account Opening. It is a type of fixed deposit account opened for saving income earned overseas as the deposit amount. The account is maintained in foreign currency. The options accessible are in 9 currency.

1. USD-United States Dollar
2. GBP-Pound sterling
3. EUR-Euro
4. JPY-Japanese Yen
5. CAD-Canadian Dollar
6. AUD- Australian Dollar
7. SGD-Singapore Dollar
8. HKD-Hong Kong Dollar
9. CHF- Swiss Franc

• PIO – A PIO is a foreign citizen of Indian origin living outside India. Either he /she has been operating an Indian passport at any one time or he/ she himself the citizen of India or his/her father or grandfather are the citizen of India.

How can NRI invest in mutual fund in India?

Non-Residents Indians and people of Indian origin can do mutual fund investments in various schemes in India. In case of NRIs, no personal approval requires from professional bodies such as the RBI.
They can invest in mutual funds on the basis of :

• Repatriable basis

To invest on a repatriable basis, one needs to have an NRE account or FCNR account with a bank in India. In this case, the investment money must be sent by usual banking channels or from the NRE/FCNR account of the NRI investor.

• Non-repatriable basis

For investing on the Non- repatriable basis, one needs to give investment funds from NRO account or NRE/FCNR account of the investor.

Investments in equity

• NRI is permitted to invest in Indian stock markets under PIS i.e. Portfolio investment scheme of RBI.
• Following this scheme, an NRI has to open an NRE/NRO account with an RBI-authorised Indian bank. A person begins only one PIS account for trading in stocks.
• There is a set limit of aggregate investments for NRIs/PIOs that cannot beat 10% of the paid-up capital in the Indian company. Also, PIS accounts assist RBI assuring that the NRI holding in Indian companies does not exceed the limit. Every Transaction by PIS account is stated to RBI.
• With a Sebi-registered brokerage firm, the succeeding step is to start a Demat account and a trading account. An NRI can only transact in India by a stockbroker.
• On a non-delivery base, NRIs cannot buy and sell shares in India. This means they can’t either do day trading in India nor short sell. In case they purchase a stock today, they can sell it after 2 days only.
• Short-selling is selling stocks that one doesn’t own in the expectation that their prices will drop, and buy them back at lower prices.

 Benefits for NRI investments in mutual funds

The vastest development in the economy in India engages many of investors from a foreign country. That’s the reason they get great benefits while investing in mutual funds.

• They can manage funds online easily, sitting in any part of the world. It becomes easier to trace and handle mutual fund from the home country too. Investors can purchase, redeem, shift also can opt for a systematic transfer plan (STP) or SWP (systematic withdrawal plan) online.
• No requirement to give cheques, make DDs, fill in physical forms or also be in the same country. One will receive regular account statements by email. Asset Management Company also posts portfolio exposures online to keep investors notified.
• There is a high reach for added profits from rupee appreciation. If the INR value has increased on the resident country’s currency, it indicates extra profits for the investor. Even with viable depreciation, the investor can get good returns. NRIs and PIOs (Person of Indian origin card) can also get similar profits by investing in India-based mutual funds in their own country of residence.

 Investment procedure for NRI in India

For an NRI, the procedure of applying in a mutual fund is the same as the one residents follow.

• The asset management companies in India never take investments in foreign currency.
• Foremost step to take starts with NRO or and NRE account or FNCR account with an Indian bank.
• There are two ways of investments :

1. Direct and Self investments

   You can make transactions easily by crediting or debiting through regular banking channels. The application along with KYC details should show that the investment is on a repatriable or non-repatriable base. The documentation of KYC involves a current photographPower of Attorney, Pan card copies (Certified), Passport, Proof of Residency outside India and details of bank statements. The bank needs an in-person verification that you can observe by visiting the Indian Embassy in your resident country.

2. Power of Attorney 

   This method says that another person will invest on your behalf. The Signature of both the NRI and power of attorney holder must be present on the KYC documents for making an investment. Companies of mutual fund permits holder of a power of attorney to invest on your behalf along with taking decisions concerning your investments.

Important things in the procedure for obtaining mutual fund investments for NRI.

• The finished application form must be submitted at the investor service centres along with cheques or bank drafts.
• Details of the Indian bank account of the investor need to furnish at the time of application.
• The alternately online application can be created. Also, the investment cannot be built in foreign currency.
• Rupee drafts bought from abroad payable in the city where the application needs to be given. Also, Rupee cheques are withdrawn from the investor’s bank account in India or from abroad payable in a bank in India.
• Usual facilities like a nomination, appointing Power of Attorney is available for NRI investors as well.
• Redemption proceeds are paid in Indian Rupees by cheque to the account number given in the application.
• For select banks, they may credit returns to the account straightly.
• The redemption gained is credited to the NRO account of the investor in case the investments are on a non-repatriable basis.

Rules & Regulation for NRI investment

Rules for NRI investment in Mutual Fund

The NRI investment in mutual funds is regulated by the FEMA Act, 1999. According to recent terms of the act :

• NRI is not permitted to make investments into Capital market involving direct stocks, ETFs and Mutual funds direct to terms or conditions.
• Though these investments are accessible in case some conditions are meeting including performing new mutual fund KYC of NRI and initiating up a power of Attorney pee titled NRE or NRO account.

NRE & NRO Accounts for NRI Mutal Fund Investments

When a person is an NRI investor, both of these accounts are mostly applied accounts and they are mandatorily needed accounts in case you plan to invest in mutual funds in India. The NRE/ NRO accounts are rupee-titled accounts. These are the balance price in Indian Rupees and not taking into account the currency in which the first deposits were made.

While both accounts are responsive to rupee devaluation and are the same in many aspects, there are some points of differences to examine when picking one over the other.

One must consider that any resident Indian accounts- You must have attained NRI status prior for easy conversion to an NRE/NRO account. This gives an easier choice to open a fresh NRE/NRO account collectively.

Regulations for NRI investment in Mutual Fund

• Kyc processing for NRI: According to the regulations for KYC processing, an NRI needs to follow these instructions :

1. Submit a copy of your passport
2. Date of birth
3. Name and Photo
4. Address
5. Current Residential proof
6. Fund house May ask for In-Person Verification

• Certificate of Remittance: If the payments are done by draft or cheque, you must add on a FRIC certificate that is Foreign Inward Remittance Certificate with it. In case, not able to do so, a letter from the bank will also work this verify the source of funds.
•  Redemption: The AMC will credit the corpus i.e. investment + gains you get after fund redemption to your account after subtracting taxes. Few banks permit the redemption amount straight away to the NRO or NRE Account. If one has selected for non-repatriable investment, they can credit the rewards only to NRO Account.

Documents Required for Mutual Fund KYC of NRI

If one is already making investments in a mutual fund as a resident of India and are verified with KYC, one will have to do the entire process of r- KYC for becoming NRI mutual fund investor. Documents needed for achieving the KYC status being NRI are as follow :

• PAN Card
•  Passport front and back pages valid copy
• Address proof of foreign residence
• NRE/NRO account cancelled a cheque

Once all the process of KYC is finished the NRI is permitted to begin making investments in domestic mutual funds as an investor. The investments can be made by Power of attorney or self/direct.

The taxation system for NRI investment

The NRI Investors do fear of paying double tax when they think of investing in India. This is exactly not the case if India has approved and signed the DTAA i.e. Double Taxation Avoidance Treaty with the respective country. For example, India has signed an agreement with the US.So, NRI can claim tax relief in the US, if he/she is already paying tax in India.

The taxation in equity and debt mutual funds :

• Based on the holding period the gains on equity mutual funds are taxable. The short-term capital gains invite the rate of tax of about 15%. Whereas, Long term capital gains are taxable about 10% in surplus of Rs.1Lakh.
• In debt funds, Short Term Capital Gains are taxable at the rate of 30%. Keeping the fund for more than three years will end in a 20% tax on the gains with indexation advantage. Long term capital gains on non-listed funds are taxable at 10% without indexation.

Tax Liabilities 

While tax liabilities of an NRI investing in India are similar to that of a resident investor. Tax is subtracted at source in case of the former. The main difference in rules of NRI and Indian resident is mutual funds and stocks is TDS( Tax Deduction at Source).

When the Indian government has a retreat of double taxation treaty (ADTT) with that country, the NRI will be saved from paying tax twice. There are various countries having an ADTT with India.

 TAX LIABILITIES OF NRIs

NRI gains from investments in India is taxed at the given rates below:

 Entire NRI investment must not exceed 10% of the paid-up capital of a company.

 Benefits of DTAA on NRI Investments

NRIS can claim the DTAA benefits on the TDS deduction. Tax paid in India upon the tax payable in their country tries of residence.
For example, if a tax of Rs 1.5 lakh has been subtracted on short term capital gains on equity funds, the NRI can claim the same upon the tax on the same gains payable in his/her country of residence.
The source behind these treaties is to guarantee that the same income is not taxed twice.

Special Considerations for US and Canadian NRI Investors   

In case one is an NRI in another country rather than the US or Canada, the process of investing for them will not be different from the resident investor. There is a slight difference in the case of NRIs residing in US and Candana. The investments in the US and Candan are regulated by FATCA i.e. Foreign Account Tax Compliance Act. This act requires extra compliance by AMC for investments arising from the US and Canada.
The fund houses that take NRI investment from US and Canada.

• Aditya Birla Sun Life Mutual Fund
• SBI Mutual Fund
• UTI Mutual Fund
• ICICI Prudential Mutual Fund
• L&T Mutual Fund
• Sundaram Mutual Fund

The above list is not complete and different fund houses do also take investments from NRI investors based in the US or Canada.

Tips to learn when investing in India

• Your investment offers the right of repatriation of the value invested and value earned until you continue to be an NRI.
• In the resident country, the residential address is a necessary field. So, you must also add attested proof along with the application.
• As compared to other nations the compliance requirement is the US and Canada are more valid. On the basis of FATCA guidelines, all financial institutions need to share the aspects of financial transactions including a US person with the US Government.
• CRS is a global reporting system to resist tax evasion. Are you a resident of any of the 90 countries that have signed CRS- keep this important question in mind, while investing in funds.

In summary, NRIs can decide to invest in his/her home country. The process may have a few primary hassles. Though, in the long run, the return on investment would be meriting it. Presently, only 8 fund houses allow mutual fund investment from NRIs living in the US & Canada. So, there is surely no reason for you to be left out of investing in a unit of the quickest developing economies.

Frequently Asked Questions (FAQs)

1) What is the way to get the In-person verification done for an NRI?

Ans) IPV can be done by an NRI by addressing the concerned officials of the Indian Embassy. Also, any other associated office present in the residing country for confirmation of the documents and getting the IPV done.

2) Do POA is permitted to invest in mutual funds on behalf of an NRI?

Ans) Yes, a Power of Attorney holder is permitted to invest in mutual funds on behalf of an NRI. But, the signs of the POA, as well as an actual investor, are compulsorily mentioned in the required documents for investing in mutual funds.

3) Is NRI allowed to invest in mutual funds via foreign currency?

Ans) Mutual funds do not permit investment in any currency except “Rupee”. So, the investment needs to be done from rupee-denominated accounts such as NRE or NRO.

4) Is there any sort of RBI or SEBI permission needed for the NRIs to invest in Mutual Funds?

Ans) No, there is no such law mandated by both the SEBI or RBI which limits NRIs to invest in mutual funds.

5) Are NRIs allowed to invest in multiple mutual funds together instead of singular AMCs?

Ans) Yes, NRIs can invest in various mutual funds at one go. Also, get support by opting to invest by top brokerages. WealthBucket gives a lawful guide for all mutual funds investors in the form of general statements, portfolio plan, etc.

6)Who gives PIO Cards and what is meant by them?

Person of Indian Origin Cards is circulated by Ministry of External Affairs and the government of India to persons of Indian origin by Indian embassy abroad.

7) Is there any proof of the Tax deduction at Source?

Ans) A TDS certificate appears in the name of the Unitholder / First holder stating the aspects of the transaction and the tax subtracted. The TDS certificate is usually known as Form16 A.

8) Is NRI allowed to do day trading?
NRIs cannot trade shares in India on a non-delivery basis, That means they cannot do day exchanging or short-selling. If they buy the stock now, they can sell it just after 2 days. An NRI cannot operate more than one PIS account.

Conclusion

The NRI investment is allowed in mutual funds, real estate and many other industries. Still, NRIs have to develop some regulations directed under the Foreign Exchange Management Act (FEMA) for their entire stock market investments. All of the details that NRIs must know about investing in mutual funds. They can save time and tax from understanding their investments rules and regulations regarding mutual funds.

The Indian economy is growing like never before. It’s time you take benefit of it by investing in safeguarding mutual funds with us. We are India’s best online mutual fund investment platform. Ensure the NRIs that India is a good and safe place to invest your incomes. WealthBucket is a secure service provider promoting investments in mutual funds.

We provide various services in a mutual fund like equity funds, small-cap funds or multi-cap funds, Short Term Mutual Funds and many more.

You can reach expert financial advice from our dedicated investment advisor over call  +91 9999379929 or email us at contact@wealthbucket.in.

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