money matters for NRIs
NRI Investment Guide on Mutual Funds

An NRI is an individual of Indian origin who stays abroad for employment or business purpose for an indefinite period of time. The individual can be a citizen of India or a foreign citizen. Investing in mutual funds in India is more attractive than investments in funds in developed countries or even India dedicated ETFs due to several reasons. The most obvious one is from the returns point of view. Since India is still a developing economy fund managers are able to beat stock market performance. Mutual fund investment is also tax efficient. 

Can NRIs invest in mutual funds?

Apart from residents, Non Residents Indians and Persons of Indian Origin can invest in mutual fund schemes in India. In case of NRIs no special approval is to be sought from authorities such as the RBI. They can invest in mutual funds on repatriable basis or non-repatriable basis. To invest on a repatriable basis you must have an NRE account or FCNR account with a bank in India. In this case the investment money should be remitted through usual banking channels or from the NRE/FCNR account of the NRI investor.  Investment can be made on a non-repatriation basis as well with investment funds being provided from NRO account or NRE/FCNR account of the investor.

Procedure

For an NRI the procedure of applying in a mutual fund is similar to the one followed by residents. The completed application form must be submitted at the investor service centers along with cheques or bank drafts. Details of the Indian bank account of the investor must be furnished at the time of application. Alternately online application can be made. Investment cannot be made in foreign currency. Rupee cheques drawn from the investor's bank account in India or from abroad payable in a bank in India or Rupee drafts purchased abroad payable at the city where the application is made must be provided. Usual facilities like nomination, appointing Power of Attorney is available for NRI investors as well.

Redemption proceeds are paid in Indian Rupees by cheque to the account number provided at application. For select banks they may credit proceeds to the account directly. If investments are made on non-repatriable basis redemption proceeds will be credited to the NRO account of the investor. Similarly if a person turns an NRI after purchasing of units the maturity proceeds will not qualify for repatriation. However dividends are fully repatriable in all cases.

Tax Treatment

Mutual fund units are treated as capital assets and attract capital gains tax in India. If held for more than 12 months long term capital gains tax is applicable and for periods less than that short term capital gains tax is applicable. No tax is to be paid on dividends received. Indexation benefits are available for long term capital gains. TDS applies on capital gains tax. TDS certificate or Form 16 A is dispatched to the investor along with redemption warrant. Mutual fund units do not attract wealth tax.

The summary of income tax rates applicable for NRIs on mutual funds for the year 2013-2014 is below

Fund Type

Short Term Capital Gains Tax

Long Term Capital Gains Tax

Equity

15.45 %

Nil

Debt

30.9 %

20.6 % (with indexation)


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