Mutual Funds: Tips For NRIs To Navigate Investment Potential In India

Whether living in India or abroad, mutual funds are considered sound and safe investment options, though they are ‘subjected to market risks’. With the rising economy, people living abroad are thinking about investing in the country to get the best returns.

In simpler terms, a mutual fund is a pool of money that finance professionals manage. The Fund Manager uses your money to invest in other assets with the best rate of interest so that you earn the most on your deposited amount.

One of the biggest reasons why NRIs should invest in mutual funds in India is because of the market growth. According to a report published in the Association of Mutual Funds in India (AMFI), “Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the month of May 2023 stood at ₹42,94,788 crore.” The Assets Under Management (AUM) stood at ₹43,20,468 crore. From May 2013 to May 2023, the AUM has seen a more than five-time growth from ₹8.68 trillion to ₹43.20 trillion.

Imagine if this is a growth curve for a decade, how much you will be able to make by investing in Indian mutual funds. We spoke with Himani Chowdhary, a finance content creator on Instagram, financial risk advisor, and NISM research analyst, to provide NRIs with a guide to investing in mutual funds in their homeland.

How Can NRIs Invest In Mutual Funds?

Chowdhary said that NRIs can easily invest in mutual funds in India by opening either NRO or NRE accounts with any Indian bank. She added, “Once that is set up, they can invest through mutual fund houses in two ways: self or by appointing a Power of Attorney (PoA).”

You will have to complete the KYC process to ensure that it is you who is investing and not any con person trying to steal your money. The finance advisor added that when you are completing your KYC, you should disclose if the investment will be made on a repatriable or non-repatriable basis. It means you will have to disclose if you will be sending money back to your homeland, in this case, India.

Tax Regulations On Mutual Funds

Since India has signed the Double Tax Avoidance Agreement (DTAA) with many countries, NRIs do not have to pay double tax (Tax On Indian Stocks) on the earnings from mutual funds. “If an NRI is paying tax in India on their investment, they can claim a tax deduction in their residing country for the same,” Chowdhary added.

The regulations for mutual funds are the same for NRIs and Indians. If you sell equity mutual funds before one year, you will be paying a flat 15% tax on capital gains. However, if you sell them after one year, you will pay no tax if the earnings are less than ₹1 lakh and 10% if the earnings are more than that.

If you own debt mutual funds, and you sell them before 36 months, the tax on capital gains will depend on your income slab. If you sell the funds after 36 months, you will be paying the tax rate of 20% after indexation.

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What Is The Process Of Investing In Mutual Funds?

Once your account is open and KYC is complete, you can start investing in mutual funds (Mutual Funds for Women) by filling out the application form for any Fund House. If you live in the US or Canada, there are a few Fund Houses in which you cannot invest because of certain compliance requirements.

But fret not, there are a few good ones like UTI Mutual Fund, SBI Mutual Fund, PPFAS Mutual Fund, etc. in which you can invest. You just have to ensure that you fulfil the additional documentation requirements.

“Once NRI has invested in the mutual funds and is ready to redeem, just follow the instructions of the respective mutual fund house and the amount will be credited directly to their NRE/NRO account after deducting Tax,” Chowdhary concluded.

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