SIP for NRI

What is SIP?

An NRI can opt for a SIP investment, which involves regularly investing a fixed amount in a mutual fund scheme. They have the flexibility to choose the investment date and can contribute a set amount monthly or quarterly, based on their preference. The amount is automatically debited from the investor's bank account on a set date. Each SIP instalment buys units at that day's prevailing price, also known as Net Asset Value (NAV). This allows the investor to stay invested even during market fluctuations and avail the benefits in the long term.

Benefits of Investing in SIP for NRIs

India attracts several foreign investors, including UAE-based NRIs, because of its fast-growing economy. These investors play an essential role in the Indian economy. The following are some of the benefits that NRIs can avail of by investing in mutual fund schemes through SIP:

1. Flexibility:

   SIP provides a convenient avenue for investing in mutual fund schemes for NRIs. It allows for adaptable payments at regular intervals, making it suitable even during market fluctuations.

2. Higher Returns:

   SIPs in mutual funds offer a better means of attaining decent returns during inflation compared to FDs or RDs. However, mutual funds are subject to market risks.

3. Compounding Power:

   SIPs enable NRI investors to augment their returns over the long term, thanks to the power of compounding.

4. Easier Management:

   Managing a substantial lump sum investment can be overwhelming. SIP schemes simplify the process by allowing the purchase of units at regular intervals, making it effortless to track and manage funds.

5. Profits from Rupee Appreciation:

   If the value of the Indian rupee increases relative to the investor's resident currency, the potential for profit is significantly higher.

How Can UAE NRIs Invest in SIP in India?

There are two choices available for UAE NRIs looking to invest in Indian mutual fund schemes through SIPs: Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts. These accounts can be easily set up with any Indian bank.

Step-by-Step Process to Start an SIP

Here is a step-wise method to start an SIP in India as a UAE-based NRI:

• Choose Your Account Type: Choose either an NRE or NRO account. An NRE account can be selected if you want to freely repatriate your principal and interest to the UAE. An NRO account can be used when you want to invest in SIPs with your India-sourced income.
• Complete Your KYC: Submit your Permanent Account Number (PAN), passport, overseas address proof, and a recent photograph to a SEBI-registered KYC Registration Agency (KRA) like CAMS. In-person verification can be done via video call with an authorised agent or by visiting the overseas branch.
• Complete Your FATCA/CRS Declaration: You are required to complete your FATCA and CRS declaration with your Asset Management Company (AMC).
• Choose Your Mutual Fund Scheme: Select a mutual fund scheme based on your financial goals and risk appetite with an AMC/fund house/bank.
• Set a Mandate for SIP: You are required to decide the amount, frequency and start date for your SIP and create a mandate with your NRE or NRO account. This step lets you contribute to your SIP on a chosen interval.

How UAE-based NRIs Are Taxed on SIP Investment in India?

UAE-based NRI investors in Indian mutual fund schemes often worry about facing double taxation. However, this fear stems from a lack of understanding. India has a Double Taxation Avoidance Agreement (DTAA) with the UAE.

• According to Article 13(5) of the India-UAE DTAA, mutual fund units are treated differently from shares. Recent Indian tribunal rulings have interpreted mutual fund units as distinct from shares.
• Accordingly, the capital gains on Indian mutual fund units held by an NRI in the UAE may be taxable only in the UAE.
• Since the UAE does not levy personal tax on individuals, this may result in zero tax for NRIs.
• However, it's important to note that this benefit does not apply automatically to NRIs; it depends on proper documentation and treaty eligibility.

Note: Tax benefit is subject to changes in tax laws. NRIs should confirm their position with a qualified tax advisor before investing in SIPs.

How to Claim Double Taxation Benefits?

An NRI in the UAE investing in SIP in India can claim DTAA benefits by following the instructions below:

• Get a Tax Residency Certificate (TRC): You must get a valid TRC from the UAE Federal Tax Authority via the EmaraTax portal.
• Fill Form 10F: Fill and submit the Form 10F electronically on the Indian income tax e-filing portal.
• Submit both documents to your AMC or relevant authorities.

Important Points NRIs Must Consider Before Investing in SIPs

When considering investments in Indian mutual funds, NRIs should keep certain important points in mind. Here are some important points every NRI investing in Indian mutual funds through SIP must consider:

• Providing foreign bank account details will result in the rejection of the application; NRIs must use either an NRE or NRO account.
• Domestic tax rates may be applicable when redeeming mutual fund units based on the type and holding period, unless you apply for relief under DTAA.
• Repatriation of proceeds depends on the source of the investment and applicable FEMA rules.

Wrapping it Up

Although SIP in mutual funds is one of the best NRI investment plans in India, the initial stages may get tedious for an individual. As you keep investing regularly, you get the benefits of rupee averaging costs in the long term. Ensure you research well before making that decision to invest in SIPs.