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How Can NRIs Invest in Mutual Funds?

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. 

Your Life, Your Legacy: Life Insurance Inquiry for Indians Abroad

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Can US-based NRIs invest in mutual funds in USD?

NRI are not allowed to invest in mutual funds using their foreign currency. They need to open an NRE or NRO account for mutual funds investments in India.

Which is the best mutual fund for NRI?

The choice of the best mutual fund for NRIs depends on several factors such as their financial situation, investment goals, risk tolerance, portfolio diversity, and so on. You can select the best mutual fund after taking into consideration all these factors.

What is NRI repatriation?

NRI repatriation means to transfer funds (capital investment + gains) from an NRI account in India to the overseas account in the name of NRI.

How does the redemption of mutual funds work?

Different fund houses have different procedures for the redemption of mutual funds for NRIs. Generally, the investments and gains are transferred to your NRE or NRO account after deducting the taxes.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not guaranteed issuance plans, and they will be subject to the Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication. However, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.