How Can NRIs Invest in Mutual Funds in India? Rules, Process and Taxation 

Key Takeaways 

• NRIs can invest in Indian mutual funds, subject to FEMA, KYC and the fund house’s onboarding requirements. 

• An NRE or NRO bank account, PAN, KYC documents and FATCA/CRS declaration are key requirements for starting the investment process. 

• The investment process is broadly similar to that of resident investors, but NRIs may face additional documentation and verification requirements. 

• Tax is deducted at source on mutual fund redemptions for NRIs, with the applicable treatment depending on the fund type, holding period and tax rules. 

• NRI investors should update their residential status, bank details and KYC promptly to avoid issues with existing folios, SIPs and repatriation. 

NRIs can invest in Indian mutual funds, and once the required account and KYC formalities are completed, the investment process is broadly similar to that for resident investors.  

This guide explains eligibility, the bank accounts required, the step-by-step investment process, repatriation rules and taxation. If you are new to what mutual funds are, understanding the basics first can make the process easier. 

Can NRIs Invest in Mutual Funds in India? 

Yes, NRIs can invest in mutual funds in India, subject to applicable FEMA provisions and the onboarding requirements of the respective fund house. AMFI confirms that NRIs are permitted to invest in Indian mutual funds, although individual AMCs may have their own conditions and restrictions.  

The two constraints that usually matter most are the bank account used for the investment and the fund house’s country-specific onboarding policy. NRIs can invest on a repatriation or non-repatriation basis, subject to applicable rules. Some AMCs also restrict or impose additional conditions on investors residing in countries such as the US or Canada.  

Mutual Fund Investment Process for NRIs 

The broad process of mutual fund investment for NRI involves:  

• Opening or maintaining an eligible NRE or NRO bank account for the investment. 

• Completing the required NRI KYC and providing overseas and permanent address details. 

• Selecting a mutual fund scheme that accepts investments from investors in your country of residence. 

• Registering your bank and folio details with the AMC or its registrar. 

• Investing through the AMC, registrar or permitted investment platform. 

• Receiving units in the mutual fund folio and monitoring the investment online. 

• Redeeming units through the permitted channel when required. 

AMFI states that KYC is mandatory before investing in mutual funds, including through SIPs.  

Mutual Fund Investment for NRI: What You Need Before You Start 

• PAN: A PAN is generally required for mutual fund transactions. Read more about what a PAN card is. 

• Bank account: You generally need an eligible NRE or NRO account depending on whether the investment and proceeds are intended to be repatriable. 

• KYC: NRI investors need to complete KYC with additional documentation, including certified copies of passport and overseas and permanent address proof.  

• Passport: A certified passport copy is required as identity documentation under the applicable KYC process. 

• FATCA/CRS: The required tax residency and FATCA/CRS declarations must be provided during onboarding. 

• Demat account: It is generally not necessary to hold mutual fund units in a demat account. Read what a demat account is to understand the distinction. 

NRI KYC can involve additional verification and documentation compared with resident investors, so the process may take longer.  

How Can NRI Invest in Indian Mutual Funds: Step by Step 

1. Confirm your eligibility: Check whether the AMC accepts investors residing in your country and whether any additional conditions apply. 

2. Arrange the bank account: Use the appropriate NRE or NRO account based on the nature of the investment and desired repatriation treatment. FEMA rules permit investment through specified banking channels and eligible NRE, FCNR or NRO funds, depending on the basis of investment. 

3. Complete KYC: Submit PAN, passport, overseas address proof, permanent address and other required declarations. NRI KYC has additional documentation requirements.  

4. Select the mutual fund: Choose a scheme based on your investment objective, risk tolerance, time horizon and the AMC’s NRI eligibility conditions. 

5. Register your investment: Complete the application through the AMC, registrar or an eligible investment platform. 

6. Make the payment: Transfer the investment through the permitted banking route and ensure the registered bank account details match the folio requirements. 

7. Track your investment: Once the transaction is processed, units are allotted to your folio. Keep your KYC, bank and tax records updated for future transactions. 

Taxation for NRI Investors 

Taxation for NRIs investing in Indian mutual funds depends on the type of scheme, the holding period and the nature of the capital gain. Unlike for resident investors, TDS is generally deducted when an NRI redeems mutual fund units for capital gains (governed under Section 195 of the Income-tax Act), with the applicable rate depending on the type of fund and holding period. 

Additionally, AMFI notes that Section 196A provides for a 20% TDS rate on specified income (such as dividends) in respect of units of non-residents, which can be modified by beneficial DTAA treaty provisions.  

• Equity-oriented funds: Tax treatment depends on the applicable short-term or long-term capital gains rules. 

• Other mutual funds: The tax treatment can differ depending on the scheme and date of acquisition. 

• TDS: Tax may be deducted at source from redemption proceeds for NRIs even though the final tax liability may require separate assessment. 

• DTAA relief: A Double Taxation Avoidance Agreement between India and the investor’s country of residence may provide relief where applicable, subject to the treaty’s conditions and documentation. 

• Capital gains: Read our guide on LTCG tax on mutual funds for the applicable capital gains framework. 

Because tax rules can change, the applicable rates and TDS treatment should be checked for the relevant financial year before making a transaction. 

Common Mistakes NRIs Make 

• Keeping resident status unchanged: Continuing to use a resident mutual fund folio or bank account after becoming an NRI can create compliance issues. 

• Using the wrong account: The account type can affect how investment proceeds are handled and whether they can be repatriated. 

• Ignoring KYC updates: Changes in residential status, address or other KYC information should be updated when required. 

• Assuming every AMC accepts overseas investors: Fund houses can have different policies for investors residing in particular countries. 

• Overlooking tax implications: TDS on redemption and potential DTAA benefits should be considered before selling units. 

Conclusion 

The process starts with choosing the right bank account, completing NRI-specific KYC and confirming that the selected AMC accepts investors from your country of residence. Taxation and repatriation treatment should also be understood before investing. The investing itself is the easy part. The account type and KYC are what decide whether it works smoothly.  

Explore FatakPay to discover mutual funds investment options that can help you build and manage your financial goals with greater confidence.  

FAQs  

Can NRIs invest in mutual funds in India? 

Yes, NRIs can invest in Indian mutual funds, subject to FEMA requirements and the onboarding rules of the respective AMC. Investments can generally be made on a repatriation or non-repatriation basis through permitted banking channels. Individual fund houses may impose additional conditions based on the investor’s country of residence.  

Can an NRI invest in Indian mutual funds without an NRE account? 

Yes, an NRI does not necessarily need an NRE account to invest in Indian mutual funds. Depending on the basis of investment, permitted funds can also be routed through an NRO account or other eligible sources under applicable FEMA rules. The repatriation treatment can differ based on the account and investment route.  

Can NRIs from the USA invest in Indian mutual funds? 

Yes, some US-resident NRIs can invest in Indian mutual funds, but AMC-specific restrictions may apply. Fund houses can impose additional requirements because of US regulations and reporting obligations. Some schemes may restrict or condition investments from US residents, so eligibility should be confirmed with the specific AMC before investing.  

Is TDS applicable on mutual fund redemption for NRIs? 

Yes, TDS generally applies to taxable mutual fund redemption gains of NRIs. The applicable deduction depends on the type of income and prevailing tax provisions. A DTAA may provide a lower rate or other relief where applicable, subject to the required conditions and documentation. 

Can an NRI continue an existing SIP after changing residency status? 

An NRI may be able to continue an existing SIP after becoming a non-resident, but the folio and bank details generally need to be updated. The investor should inform the AMC of the change in residential status and complete any required KYC or account modifications before continuing transactions. 

Is the money fully repatriable? 

The money is not automatically fully repatriable in every situation. Repatriation depends on the investment basis, source of funds, bank account used, applicable FEMA rules and any conditions attached to the investment. Investments made on a repatriation basis can have different treatment from those made on a non-repatriation basis.