What NRIs need to know before investing in Mutual Funds?

The mutual fund route is gradually getting popular among non resident Indians (NRIs) as it facilitates an easy method of participating in the equity growth story without taking undue risk and without having to bother about tracking your portfolio. While most funds have the facility of permitting NRIs to also invest, there are some basic things NRIs must be aware of. While these may sound to be quite fundamental and simplistic, NRIs need to be aware of these minor items to that disappointments can be avoided in the future.

Ensure that an NRI applicant already has a PAN number…

Today the Income Tax Department issues permanent account numbers (PAN) to both resident Indians and non-resident Indians. Many NRIs who do not file returns in India do not bother to apply for their Indian PAN number. Remember, NRIs are not permitted to invest in Indian mutual funds if they do not have a PAN number issued by the Income Tax Department. The PAN is a must even if the NRI in question is not filing his returns in India. Mutual funds do not accept applications from NRIs if they do not already have a PAN number. As an NRI it is essential to have a PAN number issued by the Income Tax department and mention the PAN number in your application form. Otherwise your mutual fund application is liable to be rejected.

There is a TDS for NRIs as per the Income Tax Act…

When a resident Indian applies for a mutual fund and earns capital gains on sale of units, the onus is on him to ensure that the capital gains tax are paid to the Income Tax department before the stipulated date. In case of an NRI, the tax treatment is slightly different. The registrar of the mutual fund (CAMS or Karvy as the case may be) is required to ensure that the Tax Deduction at Source (TDS) is deducted before paying out the redemption proceeds to the NRI. Of course, if the NRI is eventually not liable to pay the tax then he can always apply for a tax refund from the Income Tax department. But unlike in case of a resident Indian, the NRI’s tax on capital gains will be deducted at time of redemption itself.

Ensure that your bank account reflects your NRI status…

An NRI bank account is tagged separately by your bank as opposed to your resident accounts. When a person acquires his NRI status, they normally do not bother to change the status of their Resident Account status to an NRI account status. Remember, an NRI can only apply through a specified and dedicated NRI account, which could be an NRE account, NRO account or an FCNR account. If you try to apply for mutual funds as an NRI but your bank account is still tagged as a resident Indian account, then your MF application is likely to be rejected. Since the bank account is central to all your mutual fund investments, ensure that your NRI status is updated first and foremost in your bank account before you apply for Indian mutual funds.

NRIs also need to go through comprehensive KYC…

Mutual fund investments by resident Indians entail a comprehensive Know Your Client (KYC) procedure. The same comprehensive KYC applies to NRIs too. The NRI can download the KYC form from the mutual fund website or from the Point of Sale (POS). The same can be filled and submitted with all documents to the POS or can be mailed to the mutual fund. An NRI opting for KYC needs to furnish his certified true copy of the passport, certified true copy of the overseas address as well as his permanent address. Any documentations or attestations that are in a foreign language need to be translated into English before submissions. Such documents can be attested either by the Consulate or by the overseas branches of the scheduled banks registered in India.

Special approval in case of certain geographies…

While the NRIs based in Middle East may have a much easier route, the compliance is much more strict if the NRI is based in the US or Canada. In case of certain funds which have foreign ownership, applications cannot be invited from certain geographies like the US and Canada for example. Such applications are likely to filtered and rejected right away. Most funds clearly disclose this fact in their prospectus and NRIs need to consult their advisor or the specific fund for clarification on these points.

Mutual funds do offer NRIs an easy and efficient way to access the Indian markets. However, there are some statutory and compliance requirements that NRIs need to familiarize themselves with. The above points are a basic primer for NRIs looking to invest in India and can go a long way in avoiding disappointments and rejection of mutual fund applications.

For all your mutual fund queries SMS ‘ASKMF‘ to 575758 and we will get back to you

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