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The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of February 15, 2024.

As a Non-Resident Indian (NRI), you can invest or continue with your existing investments in Indian mutual funds to benefit from the growth of the Indian economy. However, there are some special rules and tax implications that you need to consider before investing.

 

Key considerations for NRIs before investing in mutual funds

1. NRI status: You should be classified as an NRI as per the prevailing Foreign Exchange Management Act (FEMA) guidelines. Click here to know more about who qualifies to be an NRI.

2. NRI bank account: As an NRI, you cannot invest in mutual funds in a foreign currency and should mandatorily invest through a rupee-denominated account. Accordingly, you should have an active Non-Residential External (NRE) or Non-Residential Ordinary (NRO) bank account in India. Click here to know more about an NRE/NRO account.

Open an NRE/NRO account

3. Know Your Customer (KYC) compliance: Once your residential status changes to an NRI, you must undergo a fresh KYC process with relevant documentation. If you are a new investor, you will need to submit your KYC documentation to either of the three:

  • Your mutual fund intermediary (e.g., bank)
  • Any KYC Registration Agency (KRA) registered with the Securities and Exchange Board of India (SEBI)
  • Your Asset Management Company (AMC)

 

KYC documentation

 

1. Passport;

2. Duly filled KYC form;

3. Non-Residential status proof such as Visa/Work Permit/Residence Permit for Indian Passport holder or OCI Card/document evidencing India connect for Overseas Passport holder;

4. Proof of Address: Driving license, Voter’s ID issued by the Election Commission of India, proof of possession of Aadhaar number, job card issued by NREGA, letter issued by the National Population Register, Passport;

5. For seafarer's account: Copy of passport and visa, contract letter, etc; 

Foreign Account Tax Compliance Act (FATCA) declaration as applicable for the United States (US) or Common Reporting Standard (CRS) for the United Kingdom (UK), Canada or any of the 100+ countries that have adopted CRS.

 

Self-certification of documents is mandatory. Additionally, you can be asked for an in-person verification, which can be done by being physically present or through a Power of Attorney (PoA).

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Mutual fund investment options for NRIs

Several AMCs offer mutual funds investment options for NRIs in India, including equity, debt, and hybrid funds. You can invest in a mutual fund online or through an appointed PoA in India.

Click here to know more about mutual fund investment options for NRIs.

 

Continuing with your existing Systematic Investment Plans (SIPs) as NRIs

You can continue with your existing mutual fund SIPs. However, you must update your residency status and NRE/NRO account details with the AMC/broker for future investments/redemptions. The redemption amount post Tax Deducted at Source (TDS) will be credited to such updated NRE/NRO account and not to the same resident savings account from which the investments were originally made.

Did you know?

NRIs from the United States and Canada may face restrictions on investing in Indian mutual funds with a few AMCs, which may not be FATCA/CRS compliant. Fund houses must comply with the FATCA and CRS guidelines, which require them to report the financial accounts and investments of their foreign clients. As a result, leading banks and brokers do not allow NRIs from the United States and Canada to invest in mutual funds through their digital platforms.

 

To know more about FATCA, click here

 

Repatriation of funds

You can invest in mutual funds on a repatriable or non-repatriable basis. If you invest through your NRE account, all the investment proceeds are fully repatriable. However, if you wish to invest from your NRO account, then the proceeds are repatriable only up to USD 1 million cumulatively for all NRO accounts held in India per Financial Year (April–March).

To know more about NRE/NRO accounts, click here.

 

Taxation of NRI investments in mutual funds

Any income earned from mutual fund investments by NRIs is subject to taxation in India. The tax rates for NRIs investing in mutual funds are the same as those for resident Indians.

It is important to know that AMCs will deduct TDS on capital gain amount as per the table below:

 

Type of mutual fund Holding period Taxation on capital gain

Equity-oriented

< 12 months

15%*

Equity-oriented

> 12 months

10%*

Debt-oriented (fixed income)

Not applicable

As per your income tax slab*

Balanced hybrid

> 36 months

20% with indexation

Balanced hybrid

< 36 months

As per your income tax slab*

*For equity-oriented funds, the TDS will be applicable as per the tax rates in India; for debt-oriented funds, the TDS will be applicable as per the highest tax bracket for all investors. 

These tax slabs are defined as per the Finance Act, 2023. You should get in touch with your financial advisor for the latest slab rates or any changes in regulations to ensure compliance.

Did you know?

Few countries such as United States of America may have a different taxation policy for foreign assets such as mutual funds. NRIs based in the USA who have invested in mutual funds in India may face tax implications in both, India, and the USA. In India, they will be liable to taxes on any realised gains, but in the USA, they will also need to account for the unrealised mark-to-market gains on these investments.

 

If you face taxation on mutual fund gains in your resident country as well as India, check whether your country has signed a DTAA with India. If so, you can avail yourself of a treaty benefit/Foreign Tax Credit (FTC) in your resident country for the taxes paid in India in accordance with the relevant DTAA. You should consult a tax expert to understand the implications of DTAA. 

Conclusion

As an NRI, you can invest in Indian mutual funds by updating your residency status, completing KYC formalities, and opening an NRE/NRO bank account. You will be subject to the same taxation rules as resident Indians for mutual fund investments. Certain AMCs will have restrictions on investments by NRIs basis the country of their residence. You should consult a tax expert to understand these rules and determine your tax liability. Mutual fund investments are subject to market risks. Please read the scheme related documents carefully before investing.

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Disclaimer:

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision. Terms and conditions of ICICI Bank and third parties apply. ICICI Bank is not responsible for third party services. Nothing contained herein shall constitute or be deemed to constitute an advice, invitation or solicitation to avail any products/services of third parties.