All You Need to Know About Investing in Indian Mutual Funds, From Canada With Love

So you’re an NRI who wants to reap the benefits of the high growth back at home or you may be someone who is planning to create a little nest egg at home to retire to. Many ask me, can as an NRI, could someone invest in mutual funds in India? The answer is Yes, you can subject to certain terms and conditions. India as an emerging economy is an undervalued stock option if you ask me and many abroad are now capitalizing on the India growth story, by investing in Indian mutual funds. Also, Indian mutual fund houses have one of the lowest charges (goes by the term, Total Expenses Ratio) across financial markets globally. So there is no reason for you to shy away from investing in Indian mutual funds.

So what are the checks and balances to weigh in, hoops to jump before you can start investing in Indian mutual funds?

Firstly, Asset Management companies (AMCs) in India cannot accept investment in foreign currency. For this, the first step is to open an NRO account, NRE account or a Foreign Currency Non-Resident (FCNR) account with an Indian bank. If details of a foreign bank account are provided, the application will be rejected.

Second is the much-dreaded KYC norms. KYC documents include a recent photograph, certified copies of PAN card, passport, residence proof (outside India), and bank statement. The current residential proof too is must, whether temporary or permanent. In your application to AMC with the required KYC details must indicate whether the investment is on a repatriable or non-repatriable basis. If you plan to take the proceeds out of the country, choose repatriable or if you want to settle in India, choose non-repatriable. Further, the bank or the AMC may require an in-person verification which you can comply by visiting the Indian Embassy in your resident country. Once you jump these hoops and the application is accepted, the investments can be made through the normal banking channels.

Alternatively, in a way to go round about the KYC norms is to execute the transactions via a Power of Attorney. That is to have someone else invest on your behalf. Asset management companies allow power of attorney (PoA) holders to invest on your behalf and take other decisions pertaining to your investments. However, signatures of both the NRI investor and PoA should be present on the KYC documents to make the investment.

Thirdly, The amount that is being invested can be directly debited from an NRE/NRO account or received by inward remittances through normal banking channels.

If the investment is made through cheques or drafts, the asset management companies would want to see your source of funds. This can be fulfilled by getting a Foreign Inward Remittance Certificate (FIRC) from your bank where you have maintained your NRE/NRO/FCNR account. FIRC is proof of payment received by the individual from outside the country in a foreign currency. It is issued by the bank where you have the account to receive the funds. In case, that is not possible, a letter from the bank would also do. This confirms the source of funds.

To sum up, the process may have some initial hassles. However, in the long run, the return on investment would be worth it. There is certainly no reason for you to be left out of investing in one of the fastest growing economies.

Redemption of Mutual Funds

The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes. They can also write a cheque for the same. Some banks allow to credit the redemption amount directly to the NRO/NRE account. If you have opted for non-repatriable investment, they can credit the proceeds only to an NRO account. On redemption of units, the tax will be deducted at source on the capital gains made on the investment.

Repatriation Woes

Whether the proceeds can be repatriated or not fully depends upon the kind of account you choose to use to invest, that is whether the investments were debited from your NRE/NRO/or FCNR account.

An NRE account is a rupee account from which money can be sent back to the country of your residence. The account can be opened with money from abroad or local funds. An FCNR account is similar to the NRE account, except for the fact that the funds are held in a foreign currency. Investments made through inward remittances or from NRE/FCNR accounts are fully repatriable. Hence, earnings made by redeeming the units or through dividends are fully repatriable.

An NRO account is a non-repatriable rupee account. In case of investments made through NRO accounts, only the capital appreciation is repatriable, not the principal amount.

If you have opted for non-repatriable investment, AMCs can credit the proceeds only to an NRO account.

Please note that your investment carries the right of repatriation of the amount invested and amount earned, only until you remain an NRI.

Tax Implications

I often hear this question in investment circles, “Will I end up paying taxes both in India and in Canada if I start investing in Indian mutual funds?”

My answer mostly is NO. There is a legal document that you need to be made aware of, it is called Double Taxation Avoidance Agreement (DTAA). If a country has signed a DTAA with India, then you are not required to further pay taxes in your country of residence for income for which you have paid taxes in India. For instance, India has signed this treaty with the US. Hence, you can claim tax relief in the US, if you have already paid taxes in India.

Mutual fund units are treated as capital assets and attract capital gains tax in India. For equity mutual funds, any gains are tax-free for an investment of over one year. If held for more than 12 months long-term capital gains tax is applicable and for periods less than that short-term capital gains tax is applicable. Currently, it is 10% LTCG tax. For a shorter period, the short-term capital gain tax is 15%.

While tax liabilities of an NRI investing in India are the same as that of a resident investor, the tax is deducted at source in case of an NRI. The key difference between investment rules for NRIs and those for resident Indians in case of both MFs and stocks is the tax deduction at source Tax is deducted at source on the profits (capital gains) on the invested amount for holdings exceeding one year. TDS certificate or Form 16 A is dispatched to the investor along with redemption warrant. No tax is to be paid on dividends received. Indexation benefits are available for long-term capital gains. Mutual fund units do not attract wealth tax.

In case of debt funds, they add the gains (made in less than 3 years) to the individual’s income. Holding the fund for more than three years will result in a 20% tax on the gains with indexation benefit. If you don’t opt for indexation, the tax will only be 10%.


An NRI can make a resident Indian his/her nominee in the mutual fund scheme. An NRI can also be the nominee for investments made by a local resident. Fund houses also allow an NRI to have a joint holding with a resident Indian or another NRI in a scheme.

The US and Canada Based NRIS

Most fund houses in India don’t allow NRIs from US and Canada because of the cumbersome compliance requirements under FATCA or Foreign Account Tax Compliance Act. Under FATCA, it is compulsory for all financial institutions to share the details of transactions involving US citizens, including NRIs with the US Government. FATCA ensures that there is no deliberate tax evasion by US citizens on income generated overseas. So investors from the US and Canada mandatorily have to submit, additional KYC and FATCA details. Currently, there are only eight AMCs that accept investments from US and Canada based NRIs.

Some of these fund houses have certain conditions on which they allow investors based in USA and Canada to put money in their schemes. For example, ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client. Similarly, L&T Mutual Fund doesn’t allow US and Canada based clients to invest in close-ended funds.

If an investor has investments in India and moves to USA or Canada as an NRI, the investments can be stopped by the AMC. When the investor moves to either USA or Canada, the fund house will stop taking further investments if the particular fund house doesn’t allow investments from USA and Canada. If the fund house accepts such investments, then you just have to update the needed documents.

List of fund houses that accept investments from NRIs based in US and Canada

  1. Birla Sun Life Mutual Fund
  2. SBI Mutual Fund
  3. UTI Mutual Fund
  4. ICICI Prudential Mutual Fund
  5. DHFL Pramerica Mutual Fund
  6. L&T Mutual Fund
  7. PPFAS Mutual Fund
  8. Sundaram Mutual Fund

Life can be unpredictable and messy. If for any unexpected event or for an ‘act of God’ you end up returning to India or if you are anytime planning to move back to India, mutual funds investment in India creates a strong financial back-up for you, which will be very helpful upon your return.

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