Mutual funds which is one of the best investment options is highly popular among Indians including non resident Indians (NRIs). However, there is often a confusion if NRIs can invest in mutual funds in India or not. This article aims to answer all such queries.
NRIs can invest in mutual funds in India. Infact, the Indian mutual funds are as accessible to NRIs as they are to resident Indians. However, NRIs need to note that the Indian fund houses do not accept investment in any currency other than Indian National Rupee (INR). Thus, NRIs must have a bank account in India in their name in order to invest in mutual funds in India. An NRI can have either of the two types of below mentioned bank accounts:
NRE (Non Resident External): It is used by an NRI to transfer foreign earnings to India. Funds, both interest and principal amount, in this account are repatriable.
NRO (Non Resident Ordinary): It is used by an NRI to manage the income earned in India. Both interest earned and the principal amount in this account is repatriable, however, the repatriation of the principal amount is subject to certain limits.
NRIs need to be KYC compliant in order to be able to invest in mutual fund
Like a resident individual, an NRI also needs to submit the following documents with an Asset Management Company (fund house). However, in addition to the following, an NRI is mandatorily required to submit a copy of his/her passport and foreign address.
- PAN card
- A passport-sized photograph
- Permanent address proof
- 1-month bank statement of the bank account which you want to use for investing in mutual funds
After the KYC process, an NRI needs to complete the In-Person Verification (IPV). From January 1, 2012, market-regulator SEBI (Securities and Exchange Board of India) has made IPV compulsory for all mutual fund investors. IPV can be completed in two ways – either by visiting any of the following institutions and submitting the original copy of the above-mentioned documents or via a video conferencing using a webcam at a pre-agreed time with the concerned intermediary.
- KYC registration agency (KRA)
- AMC
- Mutual fund agent/distributor
- Mutual fund registrar
- Karvy/CAMS office
IPV generally gets completed in 5-7 days, post which the NRI needs to submit the mutual fund application form along with the investment cheque amount to the AMC.
Tax Implications
It is very important to know and understand the tax implications on mutual funds. There are two types of earnings from a mutual fund investment – Dividends and Capital Gains – and both are taxed differently. While the mutual fund house deducts Dividend Distribution Tax (DDT) from the dividend paid to you at 10%, capital gains tax is taxable in the hands of the investor.
| Asset Class | Holding Period | Rate of Tax on Capital Gains |
| Equity Fund | Short Term (Less than 1 Year) | 15% |
| Equity Fund | Long Term (1 Year and more)* | 10% |
| Debt Fund | Short Term (Less than 3 Years) | As per investor’s income tax slab |
| Debt Fund | Long Term (3 Years and more) | 20% with indexation |
| Aggressive Hybrid Funds | Aggressive hybrid funds are taxed like equity funds. | |
| Other Hybrid Funds | If more than 65% of assets of these funds are invested in equity, then hybrid funds are taxed like an equity fund. Otherwise, they are taxed as debt funds. | |
*Long-term capital gains on equity mutual funds are exempt up to Rs. 1 lakh per annum.