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Are you an NRI? Here’s Everything You Need to Know about Mutual Fund

Mutual fund is a popular investment tool for individuals as it helps them to achieve their financial goals. Mutual fund is for everyone as it comes in different shapes and sizes. No wonder mutual funds have caught the attention of non-resident Indians (NRIs) as well.

Non-Resident Indians (NRIs) are people of Indian origin who live outside India. Until March 2020, any person who stayed in India for less than 182 days (or less) in any financial year was considered as an NRI. Currently, your residency status will depend on the period of stay and total income.

If you are an NRI and want to know more about mutual fund investment, this article is for you.

Can NRIs invest in mutual funds?

Yes, NRIs can invest in mutual funds. However, the investment process can be bit longer for NRIs. You need to remember that no approval from RBI, SEBI, or any other regulatory body is not required to invest in mutual funds.

However, few fund houses may not accept investments by NRI. 

How can NRIs invest in Indian mutual funds?

The first step to invest in mutual funds is to complete the KYC process. You just need to complete the KYC process once and you can invest in mutual fund schemes from multiple fund houses.

Here are the following documents that are required to complete the KYC:

1. Copy of Passport
2. Copy of Overseas Address Proof (in English)
3. Copy of Indian PAN card
4. Two passport size photos
5. The fully filled KYC form

If you are currently in India, you can fill up the KYC form and submit it with the necessary documents by taking help from a mutual fund distributor or by submitting the required documents at CAMS or Karvy office.In-person verification (IPV) is essential to complete the KYC process. After you submit the documents, IPV will take place and an authorized official will verify the submitted documents with the originals.

You need not worry if you are not in India. You can approach authorized officials of overseas branches of Scheduled Commercial Banks that are registered in India, Court Magistrate, Judge, Indian Embassy/Consulate General etc. in your resident country. Such officials can carry out in-person verification and verify the original documents. After the in-person verification is done, you can mail the KYC form with the necessary documents to the mutual fund house, CAMS or Karvy. Your KYC status will be updated within a few weeks. You can also check your KYC status by visiting the website.

If you are residing in US or Canada, FATCA declaration is important. You just need to provide information such as country of tax residence, tax identification number, citizenship.

NRE and NRO Account for NRI mutual fund investment

As per regulations, mutual fund houses cannot accept investments in foreign currencies. Hence, you need to make the investment in rupees from your NRE or NRO bank account. You can use both the accounts for mutual fund investments, as these accounts are rupee denominated.

The main question that now arises is whether you should opt for NRO or NRE account for your mutual fund investment.

Here are some of the key differences that you need to consider when you choose one over the other:

• NRE Account is used to deposit foreign earnings while the income generated in India is deposited in the NRO account.
• The NRE account is tax free, whereas the balance in NRO account is taxable as per the income tax slab.
• The ability to repatriate is one of the key differences between these two accounts. NRE accounts deposits can be fully repatriated, while balance in NRO accounts cannot be repatriated. This means that mutual fund investments that are made through external sources can be credited to the NRE account on redemption, and the income from the investments can be repatriated.

Taxation Rules

The taxation rules on mutual funds are similar for resident Indians and NRIs. In case of short-term gains on debt mutual funds, the gains are added to the resident’s income, but a TDS of 30% is applied for NRIs. Gains from debt mutual fund investments that remain invested for less than 36 months are considered as short-term capital gains.

You can claim Double Taxation Avoidance Treaty (DTAA) to avoid double taxation on the TDS and tax paid in India against the tax payable in the country of residence. This ensures that the same income is not taxed twice. 

Consult your mutual fund distributor to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.