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Investing in mutual funds for NRIs made simple
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Learn how to continue investing in Indian mutual funds as an NRI
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Understand the eligibility, documentation and tax liability of investing in MFs
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 October 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.
3. Know Your Customer (KYC) compliance: Once your residential status changes to an NRI, you will need to do a fresh KYC with relevant documentation. If you are a new investor, you will need to submit KYC documentation to either:
- A mutual fund intermediary (e.g., banks); or
- Directly with Asset Management Companies (AMCs)
The intermediaries will verify your identity through a KYC process and submit this information to Securities and Exchange Board of India (SEBI) registered KYC Registration Agencies (KRAs) like CAMS, CDSL or Karvy. These KRAs maintain a centralised database for all your KYC documents in a digital format, eliminating the need to resubmit your KYC information for new/additional investments.
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 Plan (SIP) as NRIs
As an NRI, you can continue with your existing mutual fund SIPs that you had initiated when you were a resident Indian. Once you become an NRI, you will have to mandatorily update your NRO account details with your AMC or broker. In case you decide to redeem your mutual fund investments (including SIPs) made while you were a resident, the redemption amount post Tax Deducted at Source (TDS) will be credited to your NRO account.
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.
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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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 redemption/dividend payout.
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| Type of mutual fund | Holding period | Taxation on capital gain on sale before July 23, 2024 | Taxation on capital gain on or after July 23, 2024 | Taxation on capital gain on or after April 1, 2025 |
|---|---|---|---|---|
Equity-oriented (equity allocation is 65% or more) |
< 12 months |
15%* |
20%* |
20%* |
Equity-oriented (equity allocation is 65% or more) |
> 12 months |
Before FY 2024-25: 10%* in excess of INR 1 Lakh For FY 2024-25 and onwards : 10%* in excess of INR 1.25 Lakh |
12.5%* in excess of INR 1.25 Lakh |
12.5%* in excess of INR 1.25 Lakh |
Debt-oriented mutual fund (equity allocation is less than 65% but more than 35%) sold before April 1, 2025. |
Up to 24 months > 24 months (Long-term capital gain) |
As per your income tax slab* 20% + applicable surcharge and cess with indexation |
As per your income tax slab* 12.5% + applicable surcharge and cess without indexation |
As per your income tax slab* 12.5% + applicable surcharge and cess without indexation |
Debt-oriented mutual fund (debt allocation is less than 65% but more than 35%) sold after April 1, 2025. |
Up to 24 months > 24 months (Long-term capital gain) |
Not Applicable |
Not Applicable |
As per your income tax slab* 12.5% + applicable surcharge and cess without indexation |
Specified Mutual funds purchased on or after April 1, 2023 (equity allocation is less than 35%) but sold on or before March 31, 2025. |
Deemed Short-term capital gain (irrespective of its holding period) |
As per your income tax slab rates* |
As per your income tax slab rates* |
As per your income tax slab rates* |
Specified Mutual funds purchased on or after April 1, 2023 (debt allocation is more than 65%) but sold on or after April 1, 2025. |
DeemedShort-term capital gain (irrespective of its holding period) |
Not Applicable |
Not Applicable |
As per your income tax slab rates* |
*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 (02), 2024. 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 US who have invested in mutual funds in India may face tax implications in both, India, and the US. In India, they will be liable to taxes on any realised gains, but in the US, 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
NRIs can invest in Indian mutual funds by updating their residency status, completing KYC formalities, and opening an NRE/NRO bank account. Certain AMCs will have restrictions on investments by NRIs basis the country of their residence. As an NRI, you will be subject to the same taxation rules as resident Indians for mutual fund investments. To arrive at your exact tax liability, you should consult a tax expert. Mutual fund investments are subject to market risks. Please read the scheme related documents carefully before investing.
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Frequently Asked Questions
Are there any restrictions or lock-in periods for NRIs investing in mutual funds in India?
Some AMCs restrict NRIs from the US and Canada from investing in Indian mutual funds schemes due to FATCA/CRS compliance requirements. The restrictions or lock-in periods for mutual fund investments vary across AMCs and depend on the type of mutual fund and the chosen mutual fund scheme. Open ended MF Schemes do not have lock-in. However, certain type of MF Schemes. For example, Equity Linked Savings Schemes (ELSS) has a mandatory lock-in period of three years. Refer to Scheme Information Document (SID) for details you should get in touch with your investment advisor for more details.
Can NRIs invest directly in mutual funds?
Yes, NRIs can invest directly in mutual funds schemes through the online portals of AMCs using their NRE/NRO accounts. Some AMCs may have restrictions, particularly for NRIs residing in certain countries like the US and Canada. You should consult the specific AMC before making any investments.
Are the dividends earned on mutual funds tax-free for NRIs?
Dividends earned on mutual funds are taxable in India. Relief, if any, in the form of concessional tax rates may be available depending on the DTAA between India and the country of residence of the NRI.
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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.
