Which Mutual Fund is Best for NRI?

The frequently asked question on NRI investment in India is that Can NRIs invest in mutual funds in India? Of course, they can! In fact, the benefit of generating profits from rupee appreciation makes mutual funds one of India's best NRI investment options. Along with reaping the benefits of NRI investment in mutual funds, it offers them the opportunity to participate in the growth and development of the country actively.

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So, let us learn the best Mutual funds for NRIs in India in 2024 and try to understand how NRIs can invest in mutual funds.

Mutual Fund Regulations for NRIs

In India, NRI investment in mutual funds is governed under the Foreign Exchange Management Act (FEMA, 2000), and the IT Act 1961 decides the NRI mutual fund taxation in India. 

The regulations to adhere to for NRI investment in mutual funds in India are as follows:

  • FEMA Regulation No. 2 (Notification 13, 3 May 2000): An NRI is defined as a person who is a citizen of India and resides outside India.

  • Income Tax Act, 1961 (If the total income accruing in India is more than Rs. 15 lakhs): As per this Act, an NRI is an Indian citizen who is a foreign resident for a minimum of 120 days in that financial year or else for a minimum of 365 days in the previous four financial years and at least 60 or more days in that year.

  • Income Tax Act, 1961 (If the total income accruing in India is up to Rs. 15 lakhs): In this case, a person is an NRI if he resides out of India for a minimum of 182 days in that financial year.

  • Under FEMA Act, once getting an NRI status, one cannot use the regular savings accounts available for citizens and can invest in Indian mutual funds in Indian currency. 

  • Thus, an NRI must have either of the following accounts: 

    • Non-Resident External Rupee (NRE) Account

    • Non-Resident Ordinary Rupee (NRO) Account

    • Foreign Currency Non-Resident (FCNR) Account.

  • NRIs can invest in India as well as hold and manage their existing properties as well in India.

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What are the NRE Accounts and NRO Accounts?

An NRE account and an NRO account can be understood as follows:

  1. NRE Account: 

    • An NRE account is most suitable for NRIs who want to transfer the corpus they saved overseas to India.

    • These accounts are repatriable.

  2. NRO Account: 

    • Only Indian Rupee currency can be parked in the NRO account. 

    • The convertibility to the foreign currency from Indian Rupee is difficult in this account.

    • This account is partially repatriable up to US$1 million annually.

  3. FCNR Account:

    • A non-repatriable NRI account that accepts only 6 currencies that are US$, GBP, Euro, CAD, AUD, and JPY.

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Best Mutual Funds for NRIs to Invest in 2024

Let us have a look at some of the best options for NRI investment in mutual funds below:

Fund Name Assets Under Management (in Crores) 3-Year Returns (in %) 5-Year Returns (In %)
SBI Small Cap Fund Rs. 15,348 crores 28.71% 12.69%
ICICI Prudential Credit Risk Fund Rs. 7,880 crores 6.98% 7.41%
Parag Parikh Flexi Cap Fund Rs. 28,546 crores 22.21% 15.78%
UTI Nifty Index Fund  Rs. 9,337 crores 15.07% 12.07%
SBI Contra Fund Rs. 7636 crores 30.3% 13.34%%
Nippon India Small Cap Fund Rs. 23,765 crores 33.9% 14.27%
PGIM India Midcap Opportunities Fund Rs. 6,953 crores 34.7% 15.54%

*returns data as on 9 January 2023.

Procedure to Invest in Mutual Funds in India

Let us now understand the process for NRIs to invest in mutual funds:

Step 1: Set Up Either an NRE Account or NRO Account 

As discussed above, under FEMA Act, an NRI investor cannot use the regular savings accounts available to Indian citizens; he must open either an NRE or an NRO Account. To do this, the KYC process must be done to activate these accounts fully.

Step 2: KYC for NRIs

It is mandatory to get KYC verified before starting to invest in mutual funds in India. To do this, one must submit the following documents:

  • A copy of the passport 

  • Date of birth proof

  • Original photograph

  • Address proof

  • Current residence proof 

  • Foreign Inward Remittance Certificate (FIRC) if payment is made via cheque.

Note: Some fund houses also require in-person verification.

Step 3: Start Investing 

An NRI investment in India can be on a repatriation or non-repatriation basis. They can be understood as:

  1. Repatriation Basis Account: 

    The investment returns, selling off an investment, rent, dividend, the net value of taxes, etc., from this account are applicable for transfer out of India.

  2. Non-Repatriation Basis Account: 

    Non-repatriation means the account from which funds cannot be transferred out of India or converted to any foreign currency. For Example, NRO is a non-repatriable account.

  3. Self or Direct Investment

    Once successful activation of their NRE or NRO accounts and authentication of the KYC process, an NRI can easily transact, debit, or credit money through the normal banking networks on their own.

    The investment application of NRIs must mention if they are investing on a repatriable or non-repatriable basis and if KYC is completed. 

  4. Investment through Power of Attorney

    If an NRI investor does not want to invest or manage his mutual fund portfolio on his own, he can do so with the help of Mutual Funds Companies or by holding a Joint Account with an Indian Resident. 

    • The NRI investor must declare the Mutual Fund Company or the Indian Joint Account Holder as Power of Attorney (PoA: the person who gets the legal authority to make decisions on behalf of the NRI investor)

    • The signatures of the NRI investor and the PoA are mandatory on the KYC document.

    • These companies manage and make investment decisions on the investors' behalf.

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People Also Read: ICICI Prudential Nifty Midcap 150

Special Consideration for Investment by US and Canadian NRIs

Due to the cumbersome compliance procedures under the Foreign Account Tax Compliance Act (FATCA), many Indian mutual fund houses discourage USA and Canadian NRIs from investing in their schemes.

However, the following are the major fund houses that allow NRIs from USA and Canada to invest in their mutual fund schemes with a few additional conditions:

  • L&T Mutual Fund

  • Aditya Birla Sun Life Mutual Fund

  • UTI Mutual Fund

  • SBI Mutual Fund

  • ICICI Prudential Mutual Fund

  • DHFL Pramerica Mutual Fund

  • Sundaram Mutual Fund

  • PPFAS Mutual Fund

How to Redeem?

To redeem the NRI investments in mutual funds, the respective fund houses mention the redemption processes.

  • The Asset Management Company (AMC) will credit the total returns to the NRE or NRO account of the NRI after tax deduction.

  • The AMC may also write a cheque for the same.

Benefits of Mutual Funds Investment by NRIs

Let us have a look at the benefits an NRI will gain from investments in mutual funds in India:

  1. Gain profits from the appreciation of the Indian Rupee: 

    Due to differences in currency rates, one can buy mutual funds at cheaper rates in India as compared with the rates in their currency and earn profits if the Indian Currency gain on the other currency. 

  2. Ease to invest and monitor their mutual fund investments: 

    The NRIs can easily invest, buy, switch, or redeem their investment portfolios online through the portals of Asset management companies or mutual fund houses.

  3. SIP investment for NRIs is also available: 

    NRIs who can invest only small sums periodically can also choose to pay SIPs for investment in mutual funds.

  4. Transparency: 

    The investor receives detailed Consolidated Account Statements (CAS) regularly through emails from mutual fund houses. The fund houses also disclose their monthly portfolio holdings on their websites.

NRI Mutual Funds Taxation

When an NRI investor redeems their mutual fund units, the taxes deducted from the returns (Investment+ Total Gains) are:

  • Tax Deduction at Source (TDS), or

  • Capital Gains Tax (i.e., Short-Term Capital Gains Tax or Long-Term Capital Gains Tax, as applicable)

Capital Gains Tax and TDS

Mutual Fund Scheme Type Short-Term Holding Period Long-Term Holding Period Tax Rate and TDS Rate
Short-Term Capital Gains Tax (STCG) Long-Term Capital Gains Tax (LTCG)
Equity-based Mutual Funds <12 Months >12 Months 15% + cess 10%+ cess, if gains exceed Rs. 1 lakh
Balanced Mutual Funds <12 Months >12 Months 15% + cess 10% Without Indexation
Debt-based Mutual Funds <36 Months >36 Months According to the Tax Slab (TDS of 30% + cess) 20% With Indexation

DTAA

For an NRI investor in mutual funds, to eliminate the double taxation on the same income in both India and the country of residence, India has signed the DTAA treaty with other countries. 

For Example, the nations with which India has signed the DTAA treaties are:

  • Afghanistan, Australia, Canada, Denmark, France, Germany, Japan, Maldives, Russia, Saudi Arabia, Singapore, UAE, UK, USA, and many more.

To Sum It Up!

NRIs can also benefit from India's growing economy through investment in mutual funds without hassles. Mutual fund investments offer long-term gains, so one must jump on the bandwagon of investing in these best options.

FAQ's

  • Can NRIs invest in mutual funds?

    Yes, NRIs can invest in mutual funds on a repatriation or non-repatriation basis if they are categorized as NRIs under FEMA regulations and the rules of the IT Act of 1961. Also, the NRI must have either an NRE, NRO, or an FCNR account to invest in mutual funds in India.
  • Which mutual fund is best for NRIs in India?

    The best mutual fund for NRI in India are as follows:
    • SBI Equity Fund
    • ICICI Pru Credit Risk Fund
    • Parag Parikh Long-Term Equity Fund
    • UTI Nifty Index Fund
  • Is a mutual fund good for NRI?

    NRI investment in mutual funds is good as it offers them to reap the benefits of Indian currency appreciation against the currency of their resident country. Also, it allows them to participate in the growth of the Indian economy.
  • Is SIP available for NRI?

    Yes, SIPs are allowed for NRI investment in mutual funds in India. NRIs, PIOs, and OCIs are allowed to invest in mutual funds, the same as any Indian citizen, with the conditions mentioned in FEMA regulations.
  • Can NRI invest in HDFC mutual funds?

    Yes, as per the regulations of FEMA, 2000, NRIs can invest in HDFC mutual fund schemes on a repatriation and non-repatriation basis.

*Past 5 Year annualised returns as on 01-07-2024
*All savings plans are provided by the insurer as per the IRDAI approved insurance plan. Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.

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