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NRIs can invest in mutual funds in India via NRE and NRO accounts. They can invest directly using these accounts or by granting the power of attorney to a trustworthy person, who can invest on their behalf.
Mutual funds are perhaps the most popular investment instruments in India. When chosen wisely, they offer low risk and decent returns as compared to the other investment options. The best part is investors do not need huge capital for mutual fund investment plans; they can start investing from as low as ₹500.
For these reasons, mutual funds are a highly sought-after investment option among Indian investors. But the question is, can NRIs invest in mutual funds in India? If yes, what are the rules and regulations for investing in NRI mutual funds?
We will address all these questions in this blog. So, without any further delay, let’s dive in!
Can NRIs Invest in Mutual Funds in India?
Yes, NRI can invest in mutual funds if they comply with the FEMA (Foreign Exchange Management Act) regulations.
As per FEMA Notification dated May 3rd, 2000, any person with Indian citizenship, living outside India, comes under the category of an Non-Resident Indian (NRI).
Further, as per Income Tax Act, 1961, NRI means a person who visited India for less than 120 days in a year. Anyone visiting more than 120 days in a financial year is considered as a resident of the country.
Note that NRI definition in FEMA decides where they can invest and NRI definition in the Income Tax Act decides how their gains will be taxed*. Hence, it is important to be aware of both definitions.
There are many Asset Management Companies that allow NRIs to invest in MFs in a hassle-free way from anywhere in the world.
How an NRI Can Invest in Mutual Funds?
The majority of AMCs in India do not allow MF investments in foreign currencies. Thus, you need to open an NRE or NRO account based on your preferences. Here is what each account means:
Non-resident External (NRE): It is suitable for NRIs who want to park their overseas earnings in India.
Non-resident Ordinary (NRO): It is an account opened in an Indian bank in the name of NRI. The main objective of an NRO account is to manage the Indian earnings of NRIs.
Once an NRE or NRO account is opened, NRI can invest in mutual funds in any one of the following ways:
Direct or Self: You can invest directly in mutual fund schemes via regular banking channels using your NRE/NRO account.
However, you will need to submit the KYC documents that include your recent photographs, self-attested copies of Adhaar, PAN, Passport, bank statements, and foreign residence proof.
Your bank may require an in-person verification, which you can manage by visiting the Indian Embassy in your country.
Via Power of Attorney (PoA): This is another way NRI can invest in mutual funds in India. The reputed AMCs allow PoA holders to invest on behalf of NRIs. You will have to complete the KYC process in this method as well. Both the NRI and the PoA holder must sign the KYC papers to be eligible to invest in MFs in India.
Documents Required to Complete the KYC Process for NRI Mutual Fund Investment
Following are the KYC documents required for NRI mutual fund investment process:
Copy of valid Passport
Recent photographs in the specified format
Resident Proof in the foreign country
Proof of Date of Birth
In-person verification (in some cases)
Besides these documents, some fund houses may require additional documents, such as a duly signed NRI declaration form for mutual funds, from their NRI clients. Thus, it is advisable to confirm the same with your selected AMC.
Understanding NRI Taxation* for Mutual Funds in India
If India has signed the DTAA (Double Taxation Avoidance Treaty) with the country you are residing in, then you will not have to pay double taxes. Simply put, if you have already paid taxes in India, you can get tax* relief in your respective country.
The taxes on mutual funds are based on their holding periods. Below is the holding period for different types of MFs:
Type of MF |
Short-term Holding Period |
Long-term Holding Period |
Equity MF |
Less than 12 months |
12 months or more |
Debt MF |
Less than 36 months |
36 months or more |
Hybrid / Balanced MF |
Less than 12 months |
12 months or more |
Following table showcase the NRI taxation on mutual fund in India on capital gains:
Type of MF |
Tax on Short-term Capital Gain (SGCG) |
Tax on Long-term Capital Gain (LTCG) |
Equity MF |
15% |
10% without indexation |
Debt MF |
As per tax slab |
20% without indexation |
Hybrid / Balanced MF |
15% |
10% without indexation |
Benefits of Investing in Mutual Funds in India for NRI
The thriving economy of India attracts investors from all over the world. Below are some ways NRIs can benefit from mutual fund investment plans in India:
Buy and Manage From Anywhere
Hassle-free management is the first and perhaps the most significant advantage of mutual fund investment for NRIs. As an NRI, you can buy and manage your MF investments from anywhere in the world.
You can invest in a mutual fund online via your NRI account. Simply put, you do not have to be physically present in India in order to manage your mutual funds. From investments to withdrawals, everything can be done securely online.
Portfolio Diversification
Mutual fund investments pave the way for NRIs to diversify their investment portfolio. For those who do not know, MF distributes its funds into multiple financial instruments, including FD options and equity shares. Therefore, by investing in mutual funds, an NRI can enjoy portfolio diversification without even being present in the country.
Range of Options
Mutual fund investment plans in India are designed to cater to the diversified needs of investors. There are three categories of MFs in India for NRIs — debt, equity, and hybrid funds. Equity funds are the funds that primarily invest in stocks2. Further, Debt funds are the ones that invest in bonds, securities, government bonds, and more. Finally, hybrid funds are the ones that invest in stocks as well as debt instruments we have just discussed.
Final Thoughts
NRIs can invest in mutual funds in India to grow their earnings and meet financial goals. Mutual funds are less risky as compared to other investment options and help in generating a smooth flow of income in the form of returns. Additionally, you can consider several other investment plans to diversify your portfolio for a financially secure future.
