How can NRIs invest in Indian mutual funds?

Many Indians settled abroad want to have investments in the home country to accumulate wealth in the long run.

As mutual funds are one of the favoured options, we lay down a few key points that non-resident Indians have to note when investing in the Indian MF space.

Pre-requisites

A non-resident Indian (NRI) — a person residing outside India but a citizen of India, defined as per the Foreign Exchange Management Act (FEMA), 1999 — can invest in mutual funds in India. For this, there is no requirement to obtain any special approval from any of the regulatory bodies.

NRIs cannot make investment in mutual funds in a foreign currency. Thus, the NRI investor is mandated to have a bank account in India. She can open an NRE- (Non-Resident External)/NRO- (Non-Resident Ordinary) denominated bank account in any bank.

An NRE is a rupee account from which funds are freely repatriable, which means funds in the account can be transferred abroad. This account can be opened with either funds remitted from abroad or local funds maintained in another NRE/FCNR (foreign currency non-resident) account. An NRO account is also rupee-denominated, but it is a non-repatriable account that can be opened with funds either remitted from abroad or from inside the country.

The other condition for NRIs to invest in India is that they must be KYC-compliant investors. The required know-your customer (KYC) documents may include a recent photograph, PAN card, address proof (domestic as well as overseas) and a certified copy of the passport.

These documents can be attested (after in-person verification) in any of the overseas branch of an Indian bank or at the Indian embassy/consulate general in the country in which the NRI resides.

Next, these documents should be transferred to either a mutual fund house or a KRA (KYC registration agencies) in India.

If the NRI is already KYC-compliant (to invest in mutual funds) before leaving India, the KYC status has to be updated, after which she would be given an NRI KYC-compliant status. For this, one can download the KYC Modification Form that is available on the websites of Indian mutual fund houses or KRAs.

Mode of purchase

Once the pre-requisites are satisfied, an NRI can invest online through the fund house’s website using the net-banking option available with the NRE/NRO account. An investment(SIP) mandate can also be given for periodical investments into the scheme.

One can also invest offline by sending the application form attached with KYC documents and a cheque or a DD (demand draft) from the NRE/NRO bank account.

When the mutual fund units are purchased through DD/NEFT/RTGS payment options, the investor might be asked to submit the forward inward remittance certificate (FIRC) to ascertain that the funds are from a particular NRO account, says Saugata Chatterjee, Co-Chief Business Officer, Nippon India Mutual Fund.

FIRC, which is a letter confirming the source of funds, can be easily obtained from the bank with which the investor maintains the specified rupee-denominated account.

Note that third-party platforms that allow to undertake mutual fund transactions is not open for NRI investors.

NRIs can also invest through their KYC-complaint demat accounts. “SIP mandate with a direct debit feature as well as lump-sum payments can be undertaken through demat,” says Rahul Jain, Head, Edelweiss Wealth Management.

POA

If an NRI does not wish to undergo the above-mentioned process, she can authorise another person in India through a power of attorney (POA) to invest/buy additional units or redeem on her behalf.

POA is a legal document in which the principal designates another person to act on her behalf.

While applying for purchase of units, the POA holder needs to submit the original POA or an attested copy duly notarised, as per SBI Mutual Fund. Note that the POA holder’s signature needs to verified for everytransaction/request.

From US/Canada

NRIs residing in Canada and the US and who have a source of income based out of these countries, have certain restrictions on investing in financial products of other countries, as per the regulatory bodies in these countries.

Chatterjee from Nippon MF says that for investors from the US and Canada, the fund house takes a declaration from the investor that the investment has been done by them without any solicitation from the mutual fund house or distributor.

Also, compliance requirements for mutual fund houses are more with respect to NRI investments from these countries.

Thus, a few fund houses do not allow investments from NRIs in these countries.

Others such as SBI Mutual Fund allow investments on an offline mode when the NRI is present in India.

Be aware

Before an NRI invests in India, she must be fully cognizant of the fact that if the invested amount in India is remitted back abroad, currency risk also plays a role in the overall returns from investments in the home country.