So, let us learn the best Mutual funds for NRIs in India in 2024 and try to understand how NRIs can invest in mutual funds.
Mutual Fund Regulations for NRIs
In India, NRI investment in mutual funds is governed under the Foreign Exchange Management Act (FEMA, 2000), and the IT Act 1961 decides the NRI mutual fund taxation in India.
The regulations to adhere to for NRI investment in mutual funds in India are as follows:
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FEMA Regulation No. 2 (Notification 13, 3 May 2000): An NRI is defined as a person who is a citizen of India and resides outside India.
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Income Tax Act, 1961 (If the total income accruing in India is more than Rs. 15 lakhs): As per this Act, an NRI is an Indian citizen who is a foreign resident for a minimum of 120 days in that financial year or else for a minimum of 365 days in the previous four financial years and at least 60 or more days in that year.
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Income Tax Act, 1961 (If the total income accruing in India is up to Rs. 15 lakhs): In this case, a person is an NRI if he resides out of India for a minimum of 182 days in that financial year.
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Under FEMA Act, once getting an NRI status, one cannot use the regular savings accounts available for citizens and can invest in Indian mutual funds in Indian currency.
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Thus, an NRI must have either of the following accounts:
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Non-Resident External Rupee (NRE) Account
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Non-Resident Ordinary Rupee (NRO) Account
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Foreign Currency Non-Resident (FCNR) Account.
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NRIs can invest in India as well as hold and manage their existing properties as well in India.
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What are the NRE Accounts and NRO Accounts?
An NRE account and an NRO account can be understood as follows:
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NRE Account:
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NRO Account:
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Only Indian Rupee currency can be parked in the NRO account.
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The convertibility to the foreign currency from Indian Rupee is difficult in this account.
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This account is partially repatriable up to US$1 million annually.
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FCNR Account:
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A non-repatriable NRI account that accepts only 6 currencies that are US$, GBP, Euro, CAD, AUD, and JPY.
Best Mutual Funds for NRIs to Invest in 2024
Let us have a look at some of the best options for NRI investment in mutual funds below:
| Fund Name |
Assets Under Management (in Crores) |
3-Year Returns (in %) |
5-Year Returns (In %) |
| SBI Small Cap Fund |
Rs. 15,348 crores |
28.71% |
12.69% |
| ICICI Prudential Credit Risk Fund |
Rs. 7,880 crores |
6.98% |
7.41% |
| Parag Parikh Flexi Cap Fund |
Rs. 28,546 crores |
22.21% |
15.78% |
| UTI Nifty Index Fund |
Rs. 9,337 crores |
15.07% |
12.07% |
| SBI Contra Fund |
Rs. 7636 crores |
30.3% |
13.34%% |
| Nippon India Small Cap Fund |
Rs. 23,765 crores |
33.9% |
14.27% |
| PGIM India Midcap Opportunities Fund |
Rs. 6,953 crores |
34.7% |
15.54% |
*returns data as on 9 January 2023.
Procedure to Invest in Mutual Funds in India
Let us now understand the process for NRIs to invest in mutual funds:
Step 1: Set Up Either an NRE Account or NRO Account
As discussed above, under FEMA Act, an NRI investor cannot use the regular savings accounts available to Indian citizens; he must open either an NRE or an NRO Account. To do this, the KYC process must be done to activate these accounts fully.
Step 2: KYC for NRIs
It is mandatory to get KYC verified before starting to invest in mutual funds in India. To do this, one must submit the following documents:
Note: Some fund houses also require in-person verification.
Step 3: Start Investing
An NRI investment in India can be on a repatriation or non-repatriation basis. They can be understood as:
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Repatriation Basis Account:
The investment returns, selling off an investment, rent, dividend, the net value of taxes, etc., from this account are applicable for transfer out of India.
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Non-Repatriation Basis Account:
Non-repatriation means the account from which funds cannot be transferred out of India or converted to any foreign currency. For Example, NRO is a non-repatriable account.
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Self or Direct Investment
Once successful activation of their NRE or NRO accounts and authentication of the KYC process, an NRI can easily transact, debit, or credit money through the normal banking networks on their own.
The investment application of NRIs must mention if they are investing on a repatriable or non-repatriable basis and if KYC is completed.
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Investment through Power of Attorney
If an NRI investor does not want to invest or manage his mutual fund portfolio on his own, he can do so with the help of Mutual Funds Companies or by holding a Joint Account with an Indian Resident.
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The NRI investor must declare the Mutual Fund Company or the Indian Joint Account Holder as Power of Attorney (PoA: the person who gets the legal authority to make decisions on behalf of the NRI investor)
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The signatures of the NRI investor and the PoA are mandatory on the KYC document.
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These companies manage and make investment decisions on the investors' behalf.
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Special Consideration for Investment by US and Canadian NRIs
Due to the cumbersome compliance procedures under the Foreign Account Tax Compliance Act (FATCA), many Indian mutual fund houses discourage USA and Canadian NRIs from investing in their schemes.
However, the following are the major fund houses that allow NRIs from USA and Canada to invest in their mutual fund schemes with a few additional conditions:
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L&T Mutual Fund
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Aditya Birla Sun Life Mutual Fund
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UTI Mutual Fund
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SBI Mutual Fund
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ICICI Prudential Mutual Fund
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DHFL Pramerica Mutual Fund
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Sundaram Mutual Fund
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PPFAS Mutual Fund
How to Redeem?
To redeem the NRI investments in mutual funds, the respective fund houses mention the redemption processes.
Benefits of Mutual Funds Investment by NRIs
Let us have a look at the benefits an NRI will gain from investments in mutual funds in India:
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Gain profits from the appreciation of the Indian Rupee:
Due to differences in currency rates, one can buy mutual funds at cheaper rates in India as compared with the rates in their currency and earn profits if the Indian Currency gain on the other currency.
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Ease to invest and monitor their mutual fund investments:
The NRIs can easily invest, buy, switch, or redeem their investment portfolios online through the portals of Asset management companies or mutual fund houses.
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SIP investment for NRIs is also available:
NRIs who can invest only small sums periodically can also choose to pay SIPs for investment in mutual funds.
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Transparency:
The investor receives detailed Consolidated Account Statements (CAS) regularly through emails from mutual fund houses. The fund houses also disclose their monthly portfolio holdings on their websites.
NRI Mutual Funds Taxation
When an NRI investor redeems their mutual fund units, the taxes deducted from the returns (Investment+ Total Gains) are:
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Tax Deduction at Source (TDS), or
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Capital Gains Tax (i.e., Short-Term Capital Gains Tax or Long-Term Capital Gains Tax, as applicable)
DTAA
For an NRI investor in mutual funds, to eliminate the double taxation on the same income in both India and the country of residence, India has signed the DTAA treaty with other countries.
For Example, the nations with which India has signed the DTAA treaties are:
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Afghanistan, Australia, Canada, Denmark, France, Germany, Japan, Maldives, Russia, Saudi Arabia, Singapore, UAE, UK, USA, and many more.
To Sum It Up!
NRIs can also benefit from India's growing economy through investment in mutual funds without hassles. Mutual fund investments offer long-term gains, so one must jump on the bandwagon of investing in these best options.
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