Wondering how can an NRI invest in Mutual fund in India? We have covered here the eligibility, process, advantages and schemes of Mutual funds in India, where an Non resident India (NRI) can invest. Higher the risk and higher the profit; this is a popular saying, but sometimes one can get better performing investments with a low-risk category, and Mutual Funds in India is one such example. NRI investors who invest in stock markets and bonds always look for investments that provide an access to market without much time engagement and expertise, and Mutual Funds are one of the popular investment options in this category. A lot of non-resident Indians (NRI) invest their money in the Indian stock market with the hope of growing their wealth back in India. For investing in the stock market, one needs to be smart in analyzing the market and should have good knowledge of the stock market. Meanwhile, Mutual Funds for NRIs, on the other hand, are the most cost-effective and convenient investment option for all types of NRI investors. In today’s article, we will discuss how can a Non resident India or NRI can invest in Mutual Funds in India.
What is Mutual Fund for NRI in India?
Before understanding the process of investing in Mutual Funds as an NRI in India, firstly, you need to know what is Mutual Fund. One can consider a Mutual Fund as a scheme that pools money from investors and grows it by investing in various investment vehicles. In simple words, you can consider it a scheme that collects money from different investors in the form of investments or funds. Then the funds or investments collected are managed and invested professionally by market experts.
A fund manager manages every Mutual Fund, also known as a portfolio manager. The task of these managers is to make investments in the short-term money markets, bonds, stocks, and different types of commodities to grow money. The money invested by portfolio managers is put into different asset classes, which reflects the investment principle of the Mutual Fund. So, in simple words, portfolio managers collect money from you as an investment or fund and then invest it in the stock market, bonds, and different commodities to grow the funds.
Benefits of investing in Indian Mutual Funds as an NRI in India
Mutual Funds are of great significance because they are a prominent financial instrument for resident Indians as well as non-resident Indians. There are many benefits of investing in Mutual Funds; some of them are as follows: –
Easy to buy and manageable
One can invest in Indian Mutual Funds as an Non resident India (NRI) from any part of the world at any time. The non-resident Indians can use their NRI accounts to buy and redeem their Mutual Funds, and they can easily make investments in Indian Mutual Funds in the comfort of their home by using online services. If you invest in Mutual Funds as an NRI, you can switch units of different Mutual Fund schemes and opt for systematic transfers or withdrawals online.
Mutual Funds do not necessarily demand the investor’s physical presence, so you don’t need to be physically present in India or submit any cheques or Demand Draft (DD) to invest in Mutual Funds. Investors can easily track their funds and receive consolidated account statements regularly by mail or online. The technology has converted the world into a global village where one can invest in Indian Mutual Funds from any part of the globe.
Mutual funds provide portfolio diversification for NRI investors in India
NRI generally prefer investing in fixed return assets like bank fixed deposits, gold, and real estate. But if you are looking for portfolio diversification, then investment in Mutual Funds is one of the smart choices you can make. Mutual funds provide you with portfolio diversification and ensure income generation with a lower risk. So, by investing in Mutual Funds, the investor can enjoy the perks of portfolio diversification.
Liquidity
In simple terms, liquidity means the ability to convert your assets into cash easily. Now imagine you own a piece of land and need cash urgently; how much time will it take to convert that asset into cash. Even if you are still ready to sell that piece of land in loss, it will take a week or a month to convert that asset into cash. But Indian Mutual Funds are different as they can be easily converted into cash. Mutual Funds are liquid assets as you can quickly retrieve money from a Mutual Fund. The process of converting your Mutual Fund asset into money will take around 3 to 4 days. So, investment in Mutual Funds can also help you get money in urgent cases.
Low efforts and less time taking
Mutual Funds are managed by portfolio managers who are professional and qualified people. Investing in Indian Mutual Funds will surely help you yield huge profits; all you have to do is wisely choose the right Mutual Fund that suits your risk factor and investment appetite. You do not need to monitor your Mutual Fund like stock markets, real estate, and bonds; all you have to do is periodically monitor your fund to ensure that your Mutual Funds are performing as per your expectations.
Scope of making huge profits due to rupee appreciation
The value of the dollar increases in the world market, especially in the case of the Indian rupee. If the Indian National Rupee’s value is against the currency of your resident country, it will help you yield more profits. Let’s understand it this way – imagine you are an NRI living in the United States of America, and you have invested $1000 in the Indian Mutual Fund. The exchange rate of $1 is 75 rupees and imagine if the value of Indian National Rupees appreciates against USD, then you will surely receive good Returns.
Have options according to everyone’s needs
Depending on the needs of the people, Mutual Funds are of different types. Some Mutual Funds have high risk while other has moderate to low risk. The Mutual Funds that offer high risk and high profit are called small-cap equity Mutual Funds. Then we have a Mutual Fund that is more stable but offers a consistent return. The risk factor in such Mutual Funds is quite low, and they are called debt funds. Besides this, some Mutual Funds offer good returns in long-term investment while some provide good profits in a short duration. So Mutual Funds have different options according to the need of people, and one can easily find the best suitable Mutual Funds that fit their risk factors and profit expectations.
Different types of Mutual Funds for NRI Investors in India
There are various types of Mutual Funds available in the market for NRI in India; some of them are as follows: –
Debt Mutual Fund for NRIs in India
Debt Mutual Funds are usually invested in bonds and provide stable returns, and the best part of Debt Mutual Funds is that they are of low risk. Out of all the Mutual Funds, Debt Mutual Funds are considered low risk, so for people looking for stable profits, a low-risk Debt Mutual Fund can be a good option. These funds are generally invested in bonds and other debt-related securities like commercial papers, treasury bills, government bonds, etc.
Equity Mutual Fund for NRIs in India
As the name suggests, Equity Mutual Funds are generally invested in stock markets and equity. Equity Mutual Funds are of higher risk than other Mutual Funds because they are invested in the stock market. Even though there are different categories of equity Mutual Funds, depending on the market capitalization or size of the companies they invest in, equity Mutual Funds can be classified as large-cap, mid-cap, and small-cap. Equity Mutual Funds are also known as equity securities, as they are invested in equities and stock markets.
Sectoral Mutual Fund for NRIs in India
Lastly, Sectorial Mutual Funds are very specific when it comes to investment. Sectorial Mutual funds invest in a specific way. They usually invest in stock equity of companies that belong to a certain sector or industry. These types of Mutual Funds are considered the riskiest because of their focus. Sectorial Mutual Funds are good for people who know a certain industry because they can quickly analyze its profit and loss factors.
Hybrid Mutual Funds for NRIs in India
Hybrid Mutual Funds are invested in both equity funds and debt instruments; that’s why they are also called balanced funds.
The procedure of investing in Mutual Funds by NRI Investors in India
The investment procedure in Indian Mutual Funds is very easy and convenient. For investing in Indian Mutual Funds, you need to follow the below-given instructions: –
Open an Mutual fund Investment account as an NRI in India
To invest in Indian Mutual Funds, you must open a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account. You need to open an NRE or NRO account because, as per the guidelines of the Foreign Exchange Management Act (FEMA), an NRI is not allowed to deposit their money in a regular saving account in India. So, you must open a Non-Resident External or Non-Resident Ordinary account once you attain the status of an NRI. Once you become an NRI, all the financial transactions in India will be done through these accounts only.
Non-Resident External Account for NRI in India: –
An NRE account is best for those NRIs who desire to save and manage their foreign earnings in India. The funds deposited in the Non-Resident External account are completely repatriable out of India.
Non-Resident Ordinary Account for NRI in India: –
A Non-Resident Ordinary account is best suited for managing Indian and foreign income. If you are getting money from India, like pensions, dividends, rents, etc., they are deposited in a Non-Resident Ordinary account. The funds deposited in the Non-Resident Ordinary account cannot be repatriated easily.
Besides these two accounts, you can also use a Foreign Currency Non-Resident (FCNR) account if you want free repatriability of the principal and interest. You will not be charged with any tax on the interest if you have a Foreign Currency Non-Resident (FCNR) account. So, the first step in investing in Indian Mutual Funds is to open an NRE or NRO bank account.
Complete your KYC for Mutual Fund Investment as an NRI in India
Next, you are required to complete your KYC. KYC stands for know your customer, and to complete your KYC, you need to submit the completely filled KYC form with the documents attested with it. One can submit its KYC form and documents through courier or post.
Submit the necessary documents by an NRI in India
You do not need special permits to invest in Indian Mutual Funds; all you have to do is submit all necessary documents for verification. The documents required for investing in Indian Mutual Funds are:
- Overseas address proof
- A copy of your passport
- A copy of one month’s bank statements
- A copy of the PAN card
- A recent passport-size photograph
- Indian or domestic address proof
Besides this, you may need to produce the Overseas Indian Citizen (OIC) or Person of Indian Origin (PIO) card. In the Merchant Navy staff’s case, the individual must submit a mariner’s declaration or certified copy of the Continuous Discharge Certificate (CDC).
The KYC documents should be attested by the authorized officials of overseas branches of scheduled commercial banks registered with the Reserve Bank of India (RBI), a public notary, an Indian Embassy or Consulate in your resident country, and a judge or a court magistrate.
In-person verification for NRI to invest in Mutual funds in India
Lastly, it would be best if you appeared for in-person verification as it is a mandatory step for investing in Indian Mutual Funds. For in-person verification, you need to connect with the official representative of the Mutual Fund house. You can connect with them through video conferencing if they allow you to do so. You must appear in their office for physical verification if they do not allow you to connect with them through video conferencing. Remember that only a few Mutual Fund houses accept applications from NRIs living in US and Canada.
Ways of investing in Mutual Funds as an NRI in India
One can invest in Indian Mutual funds as an NRI in India in the following ways: –
Lump-Sum
Lump-sum investment refers to the investment made in one go. The amount of money given in one go as an investment is called a lump sum. These investments are generally large amounts of investments. Investing in a lump sum is advantageous and gives more profits as the entire amount of money is subjected to grow simultaneously.
Systematic Investment Plan (SIP) in Mutual fund as an NRI in India
The second procedure is called a systematic investment plan. It is a method of investment that is gaining immense popularity nowadays. A systematic investment plan can invest a fixed amount of money every month. If you are investing through a systematic investment plan, the money amount will automatically deduct from your linked account every month. It is an ideal method for people who desire to save and invest from their regular income. We suggest you to carefully study and analyze your financial situation before opting for the payment method in Mutual Funds.
Mode of investing in Indian Mutual Funds as an NRI in India
For investing in Indian Mutual Funds by an NRI in India, you have two ways; they are as follows: –
Self
First is self or direct investment. Through self or direct investment, the investor can manage their portfolio. The investment in Indian Mutual Funds can be made only in Indian National Rupees INR. The profit you will earn will also be credited into your account in Indian National Rupees. So, to make a direct investment in Indian Mutual Funds, you are entitled to have an NRE or NRO bank account.
Power of Attorney
The second option is investing through power of attorney. Power of attorney mandates another person to invest in Indian Mutual Funds on their behalf. If you desire to invest through power of attorney, you need to submit your power of attorney letter to facilitate the transaction. Remember that you should always provide power of attorney to a trustworthy person because the person with Power of Attorney is empowered to make decisions related to Mutual Funds.
Process of redeeming a Mutual Fund as an NRI in India
The process of redemption varies according to Asset Management Company (AMC). The investment made in Mutual Funds can be redeemed by the specific procedure mentioned by the respective fund house. Once you redeem your Mutual Fund, the fund house will credit the amount you are supposed to receive after detecting the applicable taxes.
Things to be taken care of while investing by NRI in India
Following are some major points that one should remember while investing by NRI in India: –
The investment done by you in the Mutual Funds carries the right of repatriation of the amount. Repatriation can be done for invested amount as well as the earned amount. The right of repatriation is only eligible until you remain an NRI.
You should always check whether your resident country is among those countries with whom India has signed a common reporting standard. A common reporting standard is a global reporting system designed to combat tax invasion. India has signed a Double Taxation Avoidance Agreement with 90 plus countries to minimize tax and avoid double taxation.
For investing in Indian Mutual Funds as an NRI, you only need to submit your residence proof in your current country. The residence proof will be attached along with the application.
Final words for NRI invest in Mutual Funds in India
Though Indian Mutual Funds offer a wide range of benefits, they are also subject to market risk. One should make an informative investment after doing detailed research and analysis. We would recommend you to consult a market expert to make an informed investment. One should choose the ideal Mutual Fund which satisfies their profit appetite and risk factor.
This article is written to give you an idea about the investment procedure in Indian Mutual Funds for an NRI in India. In no way does this article guide you about the best Mutual Funds options available in India. The individual investing in Indian Mutual Funds is entirely responsible for the losses and profits. To reduce the risk factor, you should always make an informed investment after consulting a market expert and doing enough research. Besides this, you should also read the Mutual Fund papers before investing.
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