How NRIs can invest in Indian mutual funds

Bank accounts

One of the first things you need to do is to set up a bank account in India to facilitate movement of your money. Investors can either set up non-resident (external) rupee account (NRE) or a non-resident ordinary rupee account (NRO) with a bank.

An NRE account is preferable because it gives you the flexibility of repatriating your proceeds out of India without any restriction.

In other words, if you wish to invest in India from your overseas earnings, you need an NRE account. Financial planners also recommend NRE accounts for those who are not sure of how long they’ll stay overseas and where chances of them settling abroad, eventually, are high. However, you need an NRO account if you are an NRI, and get receipts in India, like rent.

Are there any restrictions?

NRIs from most countries can invest in India through MFs available here.

U.S.Based NRIs

For US-based NRIs though, it gets a bit tricky. Most US-headquartered fund houses that operate in India do not accept money from a US-based NRI because there is a rule laid out by the US securities market regulator, Securities and Exchange Commission (SEC), which says only those fund houses, globally or locally, registered with SEC can accept US NRI or citizen’s money. In light of that, lot of AMCs in India have chosen to not accept funds from investors residing in the US. This also means that US-based fund houses that operate in India such as Franklin Templeton Asset Management (India) Ltd, Morgan Stanley Investment Management Ltd and so on also don’t accept NRI money that come from those in the US. Some Indian fund houses, though, still accept money from US NRIs, but they are essentially those that don’t have any business interests in the US and therefore don’t need to interact with SEC. Says a Mumbai-based financial planner who requested anonymity: “This is not an Indian rule, but is a US government rule. That is why we invest our NRI clients’ investments in pure Indian-domiciled fund houses.”

Most other NRIs can invest in any MF schemes available in India.

Your options , if US based.

 Lots of MFs based in the US have India-dedicated MF schemes, even those who have Indian subsidiaries. Often, these MFs fall back on the research that their Indian subsidiary provides. For instance, Franklin India Growth Fund, a MF scheme available for the US citizens in the US, invests in companies that are based in India. “Such schemes are managed in the US and are actively managed. But they use the experience and research inputs that their Indian offices give because local talent always helps”, said the Mumbai-based financial planner quoted earlier.

Apart from international fund houses available in the country where you stay, that invests in India, you can use your NRE or NRO accounts to invest in MF schemes domiciled in India.

How to invest in Mutual Funds from India?

In order to invest in mutual funds, you will have to open either one of three types of bank accounts because all investments must be in Rupee. These three types are:
- Nonresident external rupee account (NRE) - the money can be sent back to your country of residence and the account can be opened with local or foreign funds.
- Nonresident ordinary account (NRO) - is a rupee account and the amount cannot be repatriated.
- Foreign Currency nonresident account (FCNR) - it is same as NRE but deposits can be made in US Dollar, pound, yen, Euro. It has a maximum tenure of five years.
- When you invest using a cheque, you will require a certificate from the bank clarifying the source of the funds. Alternatively, you can also provide a foreign inward remittance certificate.
- In order to ensure smooth management of your mutual fund, an NRI can give the power of attorney to someone to manage these funds. He can also have an Indian nominee or an Indian joint holder.
- Redemptions are made in Rupees either by check or direct transfer to your account.
- Tax is deducted at source for NRI investors unlike the Indian investors. If your country of residence has the DTAA (Double taxation avoidance agreement) with India, you will not have to pay tax after repatriation.