Can NRIs Invest in Mutual Funds in India? Updated 2025
Why Should NRIs Consider Investing in Indian Mutual Funds?
- Diverse Investment Options: Indian mutual funds offer various options, including equity, debt, hybrid, and sector-specific funds.
- Professional Management: Experienced fund managers handle investments, making it easier for NRIs to gain exposure to Indian markets without constantly monitoring them.
- Potential for High Returns: The Indian equity market has historically delivered substantial returns over the long term.
- Rupee Appreciation: If the rupee appreciates against your resident country’s currency, you can gain additional returns.
Eligibility for NRIs to Invest in Mutual Funds:
NRIs can invest in mutual funds in India under the Foreign Exchange Management Act (FEMA). You need to fulfill certain criteria:
- KYC Compliance: NRIs must complete the Know Your Customer (KYC) process. This involves submitting documents such as:
- A copy of your passport
- A recent photograph
- Proof of overseas address
- PAN (Permanent Account Number) card
- Bank Account Requirements: You need either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account to invest in mutual funds. Here’s how these accounts differ:
- NRE Account: Funds are fully repatriable, meaning both the principal and returns can be transferred abroad.
- NRO Account: Only the principal is repatriable, while interest and dividends are subject to tax.
- FATCA Declaration: As part of global tax compliance, NRIs must submit a FATCA (Foreign Account Tax Compliance Act) declaration.
Modes of Investment:
- Direct Investment:
- Visit the mutual fund company’s website and complete the KYC process.
- Choose the mutual fund scheme you want to invest in and make the payment through your NRE/NRO account.
- Through a Distributor:
- You can also invest via a registered distributor or advisor who can guide you through the process and help select suitable funds.
Tax Implications for NRIs:
- Equity Mutual Funds:
- Short-Term Capital Gains (STCG): Gains from investments held for less than 12 months are taxed at 15%.
- Long-Term Capital Gains (LTCG): Gains from investments held for more than 12 months are tax-free up to ₹1 lakh. Beyond this threshold, LTCG is taxed at 10% without indexation.
- Debt Mutual Funds:
- STCG: Gains from investments held for less than 36 months are added to your income and taxed as per your slab rate.
- LTCG: Gains from investments held for more than 36 months are taxed at 20% with indexation benefits.
- TDS (Tax Deducted at Source):
- Mutual fund houses deduct TDS on the capital gains before repatriating the funds.
- The rates are 15% for STCG on equity funds and 20% for LTCG on debt funds. NRIs can claim a refund while filing their tax returns if the applicable tax is lower than the TDS deducted.
Key Considerations for NRIs Investing in Mutual Funds:
- Currency Risk: Since you’re investing in Indian rupees, fluctuations in currency exchange rates can impact your returns.
- Regulatory Changes: Investment rules for NRIs may change, so it’s essential to stay updated.
- Repatriation Rules: Ensure that the mutual fund you choose allows repatriation of both the principal and the returns.
- Power of Attorney (PoA): If you want someone in India to manage your investments, you can issue a PoA in their name. Ensure the PoA holder is also KYC-compliant.
Steps to Start Investing:
Here’s a quick step-by-step guide for NRIs to start investing in mutual funds:
- Open an NRE/NRO Bank Account: Choose the account type based on your repatriation needs.
- Complete the KYC Process: Submit the required documents, either online or offline.
- Choose a Mutual Fund Scheme: Research and select a fund that matches your investment goals and risk profile.
- Make the Investment: Use your NRE/NRO account to transfer funds and invest in the chosen mutual fund. Also read Converting physical shares into dematerialized
Conclusion:
Whether you’re looking for long-term wealth creation or short-term gains, mutual funds offer flexibility and professional management to suit diverse investment goals. Always consult with a financial advisor to tailor your investments to your specific needs and risk appetite.
Happy investing!
About The Author
Pryank Agrawal is the Founder and CEO of Housewise, a leading property management startup serving customers across 34 countries with operations in 13 Indian cities, including Pune, Bengaluru, Hyderabad, Chennai, Delhi NCR, and Mumbai. An engineering graduate from IIT Roorkee, Pryank brings extensive experience from the software industry. His passion for leveraging technology to solve real estate challenges led him to establish Housewise, simplifying property management for homeowners worldwide. After persistent requests from existing customers to address other challenges faced by Non-Resident Indians, he founded MostlyNRI, a dedicated portal assisting NRIs with services such as taxation in India, degree attestation, certificate procurement, RTO and banking-related requests, will and inheritance matters, and much more.
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