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Indian Mutual Funds: A Complete Investment Guide for NRIs in the USA and Canada

If you are a Non-Resident Indian (NRI) living in the USA or Canada and looking to invest in mutual funds in India, this guide is for you. Unlike NRIs from other countries, those in the USA and Canada face specific compliance challenges when investing in India. However, many Asset Management Companies (AMCs) in India facilitate investments for these NRIs in a hassle-free manner. Let’s explore these AMCs and the rules governing such investments.



Who are Non-Resident Indians (NRIs)?

An NRI is an Indian citizen who has lived outside India for at least 182 days in a financial year. NRIs can retain property bought while residing in India and invest in new properties. Real estate is a significant investment area for NRIs, but they can also invest in mutual funds.


Rules for NRI Mutual Fund Investments

NRI mutual fund investments are regulated by the Foreign Exchange Management Act 1999 (FEMA). This act allows NRIs to invest in capital markets, including direct stocks, exchange-traded funds (ETFs), and mutual funds, provided they comply with certain conditions such as submitting Know Your Customer (KYC) documents and opening a rupee-denominated Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account.


Investment Procedure for NRIs in India

Mutual fund houses in India cannot accept investments in foreign currencies. NRIs must open an NRE, NRO, or Foreign Currency Non-Resident (FCNR) account with an Indian bank. They can invest through:

  1. Direct/Self-Investment: NRIs can manage transactions through usual banking channels, submitting the required KYC details with their investment application, indicating whether the investment is repatriable.

  2. Via Power of Attorney (PoA): NRIs can authorize someone to manage their investments. Both the NRI and PoA holder must sign the KYC documents at the time of investment.



Mutual Fund Investments for NRIs


Issues for USA and Canada NRI Investors

For NRIs from countries other than the USA and Canada, mutual fund investments are straightforward. However, compliance requirements under the Foreign Account Tax Compliance Act (FATCA) complicate investments for USA and Canada NRIs. FATCA mandates financial institutions to report all transactions involving US citizens to the US government to prevent tax evasion.

Due to FATCA, many mutual fund houses initially stopped accepting investments from USA and Canada NRIs. After consultations, several fund houses resumed accepting these investments with specific conditions. For example, ICICI Prudential AMC, Birla Sun Life Mutual Fund, and SBI Mutual Fund allow investments only through offline transactions with an additional client declaration. L&T Mutual Fund, however, does not accept investments in closed-ended funds from USA and Canada NRIs.


List of Fund Houses Accepting USA/Canada NRI Investments

  • Aditya Birla Sun Life Mutual Fund

  • UTI Mutual Fund

  • TATA Mutual Fund

  • PPFAS Mutual Fund

  • Nippon India Mutual Fund

  • SBI Mutual Fund • UTI Mutual Fund

  • ICICI Prudential Mutual Fund

  • L&T Mutual Fund

  • Sundaram Mutual Fund



Taxation Laws for NRI Mutual Fund Investments

Taxation rules for mutual fund investments are similar for residents and NRIs. Key points include:


Type of Scheme and Tax Rate

Scheme Type

Short-Term Capital Gains (STCG)

Long-Term Capital Gains (LTCG)

Equity Schemes

20%

12.5% on gains exceeding Rs. 1.25 lakh

Non-Equity Schemes

Taxed as per income tax slab rates

12.5% without indexation (debt and unlisted funds)


Type of Scheme and TDS Rate

Scheme Type

Short-Term Capital Gains (STCG)

Long-Term Capital Gains (LTCG)

Equity Schemes

20%

12.5%

Non-Equity Schemes

30%

12.5%

NRIs can claim the benefit of TDS deducted and taxes paid in India against the tax payable in their country as per the Double Taxation Avoidance Agreement (DTAA). For example, if a tax of Rs. 50,000 is deducted on the short-term capital gain in an equity fund in India, the NRI can claim the same against the tax required to be paid on the same gain in their resident country. The main objective of DTAA is to avoid double taxation of the same income.


Important Points to Note for NRIs

  • If details of a foreign bank account are provided, the application of the NRI will be rejected.

  • On redemption of mutual fund units, the tax will be deducted at the source of the capital gains made on the investment.

  • Your investment into mutual fund schemes carries the right of repatriation of the amount invested and amount earned only until you remain an NRI.

  • The compliance requirements in the USA and Canada are more stringent compared to other nations. According to FATCA guidelines, all financial institutions must share the details of financial transactions involving a person from the USA working with the US Government.

  • Check if you are a resident of any of the 90 countries that have signed the Common Reporting Standard (CRS). CRS is a global reporting system to combat tax evasion around the globe.


NRIs can choose to invest in their home country (India) as it is one of the growing economies in the world. There might be some difficulties in the initial stage, but in the long run, it will be fruitful. NRIs will have a scope to earn returns from investments as well as more profits from rupee appreciation. With online investment options, it has become easy for NRIs to track their investment portfolio. Even NRIs from the USA and Canada can start investing in mutual funds as the number of fund houses accepting USA and Canada clients is increasing

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