October 14, 2019

NRI investment in Mutual Funds in India – A complete guide

There is a lot of confusion among NRIs when it comes to investing in mutual funds in India. Hence, let us discuss in detail about NRI investment in Mutual Funds in India.

The confusion is mainly because they get it confused with KYC or Bank Account details and also the taxation in the country where they moved.

Can NRI invest in mutual funds in India?

Yes, all NRIs can invest in mutual funds in India. Yes, the procedure is bit cumbersome or extra when it comes to NRIs invest in mutual funds in India. Do remember that no approval is required from RBI or any other body to invest in mutual funds in India.

Let us first define who is an NRI.

A Non-Resident Indian (NRI) is a person residing outside India. This person may be an Indian citizen or of Indian origin. One is deemed to be a “person of Indian origin” if he or she is a citizen of any country other than Bangladesh or Pakistan and if:

  • He or she has At any time held an Indian passport
  • The person or either of his or her parent or grandparent was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57of 1955);
  • The person is a spouse of an Indian citizen or a spouse of the person referred to in the above points.

Ways for NRIs to invest in Mutual Funds in India

You can invest by any of the below methods.

# Self or Directly

One can carry out transactions, debiting or crediting through normal banking channels. Your application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include the latest photograph, attested copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification, which you can comply by visiting the Indian Embassy in your resident country.

# Via Power of Attorney (POA)

Another method is to have someone else invest on your behalf. Mutual fund companies allow Power of Attorney (PoA) holders to invest on your behalf and make decisions about your investments. However, signatures of both the NRI investor and PoA should be present on the KYC documents to invest.

While applying for the purchase of units the POA holder needs to submit the original POA or a copy duly notarised should be submitted. The Power of attorney should contain the signature of both the first holder and the POA holder. Only when the POA is registered does the POA holder have the right to transact on behalf of the NRI/FII investor. His signature will be verified for processing any transaction/request.

First Step of NRI investment in Mutual Funds in India

The first of NRI investment in Mutual Funds in India is to complete the KYC process. Note that you no need to reapt the KYC process with all AMCs. You just have to complete this process only with one mutual fund company. Your KYC will be automatically updated in the central repository.

For doing your KYC, the following documents are required.

  1. Copy of Passport is compulsory
  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

You can complete your KYC either by taking support from a mutual fund distributor or directly submitting the filled KYC form at CAMS or KARVY Offices in your city by personally visiting them.

I have a video on this on how to fill the KYC form. Please refer to the same.

Do remember that you need to get in-person verification (IPV) done. During IPV, an authorized official confirms your presence and verifies the copies of aforesaid documents with the originals.

If you are on a visit to India, you can simply visit any CAMS, Karvy, AMC branch or distributor office in your city with the aforesaid documents and complete the process. Documents verification and IPV will be done at the same time and you are good to go.

If you are staying outside India, then you can approach authorized officials of overseas branches of Scheduled Commercial Banks registered in India, notary public, Court Magistrate, Judge, Indian Embassy/Consulate General in the country where you reside. Such individuals are permitted to do IPV along with verification of originals.

Once IPV (and document verification) is completed, you can send the KYC form along with the aforementioned documents to the fund house or R&T agents (CAMS, Karvy). Your KYC information will be updated in the system in a few weeks.

Important Points:-

  1. Incase of POI, thePOI card is also required in documentation
  2. In case your overseas address is not in English, you need to get it translated by a translator in your city and get their stamp
  3. In case you do not want to travel to India just for making investments, you can always give POA (Power of attorney) to someone trusted who can do the process for you.

Once you submitted the KYC documents, then you have to wait for 4-5 days and afterward, you can check your KYC status by using the below links.

https://kra.ndml.in/

https://camskra.com/

https://www.karvykra.com

https://www.cvlkra.com/

https://www.nsekra.com/

FATCA Declaration

Nowadays FATCA declaration is mandatory for all (Resident Indians or NRIs). However, it is mainly important if you are resident NRIs of the USA and Canada.

Usually, the common application form itself provides this facility to declare the FATCA. Hence, it is not part of the KYC process. But can be completed when you are investing.

One has to provide information like country of tax residence, tax identification number from that country, country of birth, country of citizenship, etc.

Whether NRI use NRE or NRO account to invest in mutual funds in India?

Let us first understand the difference between NRI or NRO account.

A Non-Resident (External) Rupee (NRE) account is a Rupee account opened and operated on a repatriable basis. Such an account can be opened with funds that are either remitted from abroad or local funds, which can be remitted abroad.

An Ordinary Non-resident Rupee (NRO) account, on the other hand, can be opened with funds either remitted from abroad or generated in India. The amount in such accounts is non-repatriable.

Do remember that a Fully Convertible Non-Rupee (FCNR) account is similar to the NRE account except that the funds are held in foreign currency like dollar and etc.

An NRI cannot make the investment in foreign currency. He needs to give a Rupee cheque from his NRE, NRO bank account in India. He may also send a Rupee cheque from abroad payable in a bank in India. However, for an NRI to invest, it is mandatory that he maintains a bank account in India.

If the investment is made out of inward remittance or from funds held in the NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to the NRE or FCNR account of the NRI.

If the purchase of units is made on a non-repatriable basis (NRO), the maturity proceeds/repurchase price of units (after payment of taxes) will not qualify for repatriation and may be credited to the NRO account.

Do remember that only current income such as rent, pension, interest, etc. can be remitted from an NRO account outside India. Apart from current income, balances in the NRO account may be repatriated abroad or to a NRE account only up to $1 million in a financial year (April to March). Repatriation of an amount in excess of $1 million may be permitted by RBI under the approval route in exceptional circumstances.

In case of a mutual fund, the principal, as well as the interest of the funds in an NRI account, can be repatriated only if a person holds either an NRE account or an FCNR account. In the case of an NRO account, only interest earned on the account can be repatriated.

How NRI can start investing in mutual funds in India online?

Once you completed the KYC process and also aware of which account to be used for your mutual fund investments in India, then you are almost done. There are many online portals available for DIRECT mutual fund investors to use it and start investing from the place you are staying currently.

I suggest you the DIRECT Funds under the observation of SEBI Registered Investment Adviser ( I am also a SEBI RIA and you can refer my service page at “Fee-Only Financial Planning Service“.

You can use the below options to start investing in DIRECT Funds and they are as follows.

  1. Respective Mutual Fund Company websites
  2. CAMS or KARVY (In case of Franklin, you have to go with Franklin itself).
  3. MF Utility India
  4. Or the platforms provided by private players. Here, few are offering you at free of cost and few charing.

For a complete guide on this aspect, refer my earlier post “Best Direct Mutual Funds Platforms 2019 – A complete list“.

NRI Mutual Fund Taxation 2019

You understood the process of investing in mutual funds. However, before jumping into an investment, you must also understand the NRI Mutual Fund Taxation for 2019. Refer the below table or refer my earlier post ”

Mutual Fund Taxation FY 2019-20 -Capital Gain Tax Rates

Note-Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

The concern with many NRI investors is whether they will have to pay double tax when they invest in India. It is not like that if India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country. For instance, India has signed this treaty with the United States. Hence, you can claim tax relief in the US, if you have already paid taxes in India.

Do remember that dividend received by NRIs is tax-free in the hands of investors. However, mutual fund companies will pay the dividend distribution tax. The below table will explain to you the DDT.

Mutual Fund Taxation FY 2019-20 - DDT Rates

How NRI from the USA or Canada can invest in Mutual Funds in India?

If you are an NRI from the USA and Canada, then you are not allowed to invest in all the mutual fund companies.

Most fund houses in India don’t allow NRIs from USA and Canada to invest with them due to cumbersome compliance requirements under FATCA or Foreign Account Tax Compliance Act. When FATCA came into place, fund houses stopped taking investments from the USA and Canada because of the complexity associated with the compliance. However currently, the following fund houses accept NRI investments from USA and Canada.

  • Birla Sun Life Mutual Fund
  • SBI Mutual Fund
  • UTI Mutual Fund
  • ICICI Prudential Mutual Fund
  • DHFL Pramerica Mutual Fund
  • L&T Mutual Fund
  • PPFAS Mutual Fund
  • Sundaram Mutual Fund

Among these, again few have certain special rules and regulations. For example, ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client. Similarly, L&T Mutual Fund doesn’t allow USA and Canada based clients to invest in close-ended funds.

Hence, it is always advisable to discuss your NRI status with the mutual fund company before jumping into investment.

Let me explain the whole process as below.

NRI investment in Mutual Funds in India

What if you are a current mutual fund investor and your status changed from Resident Indian to NRI or vice versa?

Now we discussed above about the fresh investor of mutual funds. But what if you are already an existing mutual fund investor and your residential status changing from resident Indian to NRI or vice vera.

# Resident Indian to NRI

If you are an existing investor in mutual funds, then immediately once your residential status changes, then you are no more allowed to continue the regular savings account.

Hence, the first thing you have to do is convert the existing savings account to NRI.

At the same time, you have to update your KYC status (as your residential status changed from resident Indian to NRI), with your mutual fund companies.

Make sure you update your bank details of the new NRI account with all mutual fund companies.

# NRI to Resident Indian

You have to follow the reverse process of what I have explained above.

Conclusion:-I hope by reading the above post, you might come into the conclusion of what to do and how to invest in mutual funds in India if you are an NRI. I suggest you to complete the KYC and first investment process when you are in India (physically). This will create a hassle-free satisfaction in your mind too. Also, as of now, online KYC is not available for NRIs from many AMCs. Hence, physical KYC is an option.

The trick to complete the KYC is through an adviser. Once it is done, then using online platforms, you can start investing in direct funds or regular funds.

THE BIGGEST RISK TO YOUR INVESTMENT FROM NRI POINT OF VIEW IN MUTUAL FUND IS THAT OF RUPEE DEPRECIATION. Take consideration of this too into the picture.

10 Comments

  1. Hello Basavraj, During my recent visit to India , i did invest into SIP plan of ICICI Pru Mutual Funds and as a part of this , my KYC was done and on CAMSKRA website, it shows the status as – KYC REGISTERED – New KYC. Now i am back to USA and is there any way for me to invest online since my KYC is already done and if so, how ?

    Reply
  2. Hi,
    1)What are the changes required if investing via MF Utility portal? Just submitting an updated KYC and bank mandate will work or need to open a new CAN?

    2)Is IPV for KYC mandatory when converting from resident Indian status to NRI? Since IPV and full KYC was done earlier as resident Indian.

    3)Also is there any difference in using NRE or NRO account for investing in MFs apart from repatriation? I mean any tax advantage/disadvantage on using NRE vs NRO or anything else?

    Thanks.

    Reply
    • Dear Rahul,
      1) CAN is mandatory for investing in MFU.
      2) Except repatriation, there is no special difference if you invest using NRE or NRO accounts.

      Reply
    • Same question as you Rahul. I hope someone can answer this.

      Reply
  3. Hi, Can NRIs(non-US/ Canada) invest in Direct Mutual funds? CAMS is not allowing registration.

    Reply
    • Dear Krati,
      Yes, you can invest in all AMCs DIRECT Funds. I am not sure why CAMS not allowing. But definitely you can invest.

      Reply
  4. Very much useful information.

    Reply

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