With excellent performance of the equity markets in India, Non-Residents Indians (NRI), which includes non-resident Indian citizens as well as Persons of Indian Origin (POI), are eyeing an opportunity to invest. So if an NRI wants to invest in mutual funds in India, what are the provisions that the person has to fulfil?
Know Your Customer (KYC) norms
Like any other financial transaction, NRIs also have to comply with the basic KYC norms before they can start investing. The KYC process for NRI and residents is the same except that for residential status the NRI has to state non resident. As an NRI, you have to mandatorily provide your overseas address with documentary evidence. For communication purposes, however, you can provide your local address as well. Once the KYC is done your status will reflect as non-resident. The status to be reported in KYC form has to be as per the Foreign Exchange Management Act (FEMA) as investments are regulated by FEMA laws.
Mode of payment for making investments
Investments in mutual funds are permitted in Indian rupees only and you will receive the redemption proceeds also in the Indian currency. The payment for making investments in mutual funds can be done from either your NRE (Non Resident External) or Non Resident Ordinary (NRO) account. For money remitted from outside India in the form of rupee drafts or bankers’ cheque, you need to provide the Foreign Inward Remittance Certificate (FIRC) as well as a letter issued by the foreign bank. For making investments and for getting the redemption proceeds credited, you can register either your NRE or NRO account only as you are not allowed to register your foreign bank account.
Repatriation of redemption proceeds
NRIs can make investments in all the products of mutual funds whether debts, equity or a mix of both. The investment in mutual funds can be made in two ways as far as option to remit back the money abroad is concerned. It can either be with a right to remit back the money abroad i.e. with repatriation or on non-repatriation basis. All the redemption proceeds of investments made from your NRE account or through direct remittances, can be fully remitted back abroad on repatriation basis.
The investments made from NRO account are non repatriable. However, an NRI you can remit upto USD 10 lakhs every year from his NRO account after payment of applicable Indian taxes due on the amount being remitted.
Joint holding and nomination
NRIs can make investments in Indian mutual funds jointly with a resident or an NRI who has complied with KYC norms. For your mutual fund investments you can appoint any person/s as nominee. The nominee need not be an NRI and even a resident can also be made nominee for your investments in mutual funds.
Operation through power of attorney holder
For the purpose of day-to-day operations and management of your investment in mutual funds, you can appoint any resident of India through a power of attorney. The power of attorney has to be registered with the concerned mutual fund house. Once it is so registered, the POA holder can sign documents for purchase, switch and redemption. For the purpose of investment, the original POA or its notarised copy is required to be submitted. The POA needs to be signed by the NRI investor and the POA holder both.
Investment by US / Canada based non-residents
Due to cumbersome compliance requirements under FATCA (Foreign Account Tax Compliance Act) of US and Canada, only a few mutual fund houses allow US or Canadian residents to invest in mutual funds in India. As of now US/Canada based NRIs can invest in schemes of certain mutual funds houses like Birla Sun Life, SBI Mutual Fund, L&T Mutual Fund, PPFAS Mutual Fund, UTI Mutual Fund, Sundaram Mutual Fund, ICICI Prudential and DHFL Pramerica Mutual Fund.
Change of status
In case you leave India in circumstances indicating an intention not to return to the country soon and thus making you a non resident for FEMA purpose, you should intimate all the mutual fund house where you already hold investment of the fact of your having become a non resident. The fund houses will then change you status to that of a non resident. Likewise if you come back to India for good and thus again become a resident, you need to intimate the fund house of that too.
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