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 2023 and try to understand how NRIs can invest in mutual funds.
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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An NRE account and an NRO account can be understood as follows:
An NRE account is most suitable for NRIs who want to transfer the corpus they saved overseas to India.
These accounts are repatriable.
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$1 million annually.
A non-repatriable NRI account that accepts only 6 currencies that are US$, GBP, Euro, CAD, AUD, and JPY.
Let us have a look at some of the best options for NRI investment in mutual funds below:
|Assets Under Management (in Crores)
|3-Year Returns (in %)
|5-Year Returns (In %)
|SBI Small Cap Fund
|Rs. 15,348 crores
|ICICI Prudential Credit Risk Fund
|Rs. 7,880 crores
|Parag Parikh Flexi Cap Fund
|Rs. 28,546 crores
|UTI Nifty Index Fund
|Rs. 9,337 crores
|SBI Contra Fund
|Rs. 7636 crores
|Nippon India Small Cap Fund
|Rs. 23,765 crores
|PGIM India Midcap Opportunities Fund
|Rs. 6,953 crores
*returns data as on 9 January 2023.
Let us now understand the process for NRIs to invest in mutual funds:
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.
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
Current residence proof
Foreign Inward Remittance Certificate (FIRC) if payment is made via cheque.
Note: Some fund houses also require in-person verification.
An NRI investment in India can be on a repatriation or non-repatriation basis. They can be understood as:
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.
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.
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.
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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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
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.
Let us have a look at the benefits an NRI will gain from investments in mutual funds in India:
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.
The NRIs can easily invest, buy, switch, or redeem their investment portfolios online through the portals of Asset management companies or mutual fund houses.
NRIs who can invest only small sums periodically can also choose to pay SIPs for investment in mutual funds.
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.
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)
|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
|15% + cess
|10%+ cess, if gains exceed Rs. 1 lakh
|Balanced Mutual Funds
|15% + cess
|10% Without Indexation
|Debt-based Mutual Funds
|According to the Tax Slab (TDS of 30% + cess)
|20% With Indexation
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.
Afghanistan, Australia, Canada, Denmark, France, Germany, Japan, Maldives, Russia, Saudi Arabia, Singapore, UAE, UK, USA, and many more.
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.
*All savings are provided by the insurer as per the IRDAI approved insurance
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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