India Calling: How should NRIs approach investing in Indian mutual funds?

Non-resident Indians (NRIs) often seek investment opportunities in India to secure financial stability for themselves and their families. The Indian market, known for its diverse investment options such as equities, mutual funds, fixed deposits, and debt funds, offers a promising avenue for wealth creation. This article explores the specifics of mutual fund (MF) investments in India for NRIs, highlighting the regulatory framework and the necessary steps to make informed decisions.

Investing in Indian mutual funds: The basics for NRIs

For NRIs eyeing the Indian mutual fund market, the initial step involves setting up either a Non-Resident Ordinary (NRO) or a Non-Resident External (NRE) bank account with an Indian bank. This requirement stems from the regulation that Asset Management Companies (AMCs) in India cannot accept foreign currency investments. Hence, all investments by NRIs are made in Indian Rupees.

Two paths to mutual fund investment

NRIs can approach mutual fund investments in India through two primary methods:

1. Direct Investment: This approach involves the NRI submitting their application and the required Know Your Customer (KYC) documents. This process may necessitate in-person verification, for which the NRI should visit the Indian embassy in their country of residence with the relevant documentation.

2. Power of Attorney (PoA): Alternatively, NRIs can assign a PoA to a trusted individual in India to make investment decisions on their behalf. This method requires the signatures of both the NRI and the PoA on all KYC documents.

Regulatory compliance and documentation

To ensure a smooth investment process, NRIs must adhere to various regulatory requirements and submit specific documentation:

KYC Compliance: Essential documents for KYC include a passport copy, PAN card, recent photograph, bank statement, and proof of address.

FEMA Regulations: Investments must comply with the Foreign Exchange Management Act (FEMA), necessitating a declaration from NRIs to affirm adherence to Indian regulations.

Foreign Inward Remittance Certificate (FIRC): For mutual fund investments, payments must be made via cheque or demand draft, accompanied by an FIRC to verify the source of funds.

Redemption Process: Upon maturity or exit from an mutual fund investment, the proceeds are credited to the NRE/NRO account after tax deductions. For non-repatriable investments, proceeds are credited only to an NRO account.

Tax considerations and FATCA compliance

Tax implications are a crucial aspect of NRIs investing in India. Fortunately, the risk of double taxation is mitigated if India has a Double Taxation Avoidance Treaty (DTAA) with the NRI's country of residence. The Foreign Account Tax Compliance Act (FATCA), effective from January 2016, mandates all Indian and NRI investors to file a FATCA self-declaration.

Conclusion

The Indian mutual fund market presents a viable and potentially lucrative investment opportunity for NRIs. By familiarising themselves with the investment regulations and fulfilling the necessary documentation, NRIs can effectively navigate the Indian mutual fund landscape. This ensures a seamless investment experience and helps secure their financial future in their home country, contributing to their dream of a better life for their loved ones.

Chakravarthy V., Executive Director and Co-founder, Prime Wealth Finserv Pvt Ltd.