The investment focus of Non-Resident Indians has shifted significantly – from real estate to Mutual Funds, in the recent times. It’s no surprise. With consistent, and high returns, top Mutual Funds make for a good investment choice both for first-time investors and as an alternative to real estate.
It is easily possible for NRIs to invest in Mutual Fund schemes in India. They are not required to seek any special permission from the RBI which is necessary for other investment schemes. There are two ways that an NRI can invest in a Mutual Fund in India:
- Repatriable Investment: If the investors wish to send the returns back to India, then they should choose a repatriable investment. A repatriating investment requires you to have either an NRE (Non-Resident External) or an FCNR (Foreign Currency Non-Resident) account in a bank in India. The money that you invest is remitted from your country abroad to India through this bank account.
- Non-Repatriable Investment: This type of investment involves money being sourced from an NRO (Non-Resident Ordinary) bank account. The redeemed income is not repatriable. But the dividend of this amount is repatriable.
It is important to note that all investments that an NRI makes must be in the Indian currency. Mutual Fund schemes are not permitted to accept foreign currency investments. There are three options to open a bank account in India:
- Non-Resident External (NRE) Account
- Non-Resident Ordinary (NRO) Account
- Foreign Currency Non-Resident (FCNR) Account
The entire investment process is carried out through the usual banking channels. The investment of the principal amount, as well as receipt of the return income, occurs via the bank account. Additionally, you can also make the investment through a cheque or draft in the rupee.
- Remittance Certificate: A cheque or draft investment requires a validation document, either a Foreign Inward Remittance Certificate (FIRC) or a letter from the issuing bank, to confirm the source of the funds.
- KYC: In addition to this, you are required to submit the documents pertaining to the Know Your Customer (KYC) registration. The requirements include the Permanent Account Number and address proof.
An NRI can make investments in India through a PoA holder. Via this method, you allow someone else to manage your funds on your behalf.
Once you have made the investments, you can choose a Power of Attorney to keep track of your funds with respect to the market movements. Mutual Fund schemes allow the PoA to take decisions regarding your investment during your absence.
The process of registering an attorney involves submission of the original or an attested copy of the PoA document to the fund house. This document should include your as well as the attorney’s signatures. The fund house will verify the PoA holder’s signatures.
Companies offering top mutual funds also allow Indian citizens to nominate NRIs as their PoA holders. NRIs are also allowed to have a joint holding with other NRIs as well as Indian residents.
The redeemed proceeds are either transferred directly to the bank account or paid via cheques. This income is also in the Indian currency. The entire sum can be repatriated in case of an NRE or FCNR account. Only the capital appreciation is repatriable in an NRO account.
Tax liabilities are the same for an Indian citizen and an NRI investing in Mutual Funds. However, the latter must pay the tax at the source. Investments from NRIs are subject to Tax Deduction at Source (TDS).
A major fear among NRIs investing in India is that of having to pay double taxes. For instance, an investor living in the US may believe they have to pay taxes to both the US and the Indian government for their investments. However, this is not the case.
Nations (such as the US) with which India has signed the Double Taxation Avoidance Treaty (DTAA) allow the investors to claim tax deductions. That means an investor who pays 15% taxes for their Mutual Funds in India can claim a 15% deduction from their tax liabilities in the US.
If you are looking to invest with short-term goals, debt funds may be an ideal choice of investment, since they prioritise the funds’ safety over returns.
A mid-term investment is apposite in hybrid funds while equities are the best suited for a long-term investment. Equity funds are highly competitive with the inflation rates and offer the scope of higher returns. Their volatile nature makes them unfit for a short or mid-term investment. However, they can provide good capital appreciation in the long run.
Investing in a Mutual Funds in India is not any different for an NRI in comparison to an Indian citizen. You are only required to choose the right bank account and get some documents. The rest of the procedure is largely the same. Here are a few online top mutual funds that you can choose from for investing your savings in India.