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NRI Guide to Investing in Mutual Funds 
The following information will address most issues that Non Resident Indians/Person of Indian Origin (PIO)/Foreign Institutional Investor (FII) might have, with respect to mutual fund investments in India. In view of the individual nature of implications, each investor is advised to discuss with his / her own investment and tax advisors the specific tax and other implications arising out of their participation in mutual fund schemes.
Who is a Non-Resident Indian (NRI)?
 
 

The following are the main three categories of NRIs:-

An Indian citizen who stays abroad for employment or for carrying on business or vocation or under circumstances indicating an indefinite period of stay abroad
Indian citizens working abroad on assignments with foreign governments or international agencies like UNO (United Nations Organization), International Monetary Fund (IMF), World Bank etc.
Officials of Central and State Government and Public Sector Undertakings deputed on temporary assignments or posted to their offices, including Indian diplomat missions, abroad.
 
Who is a Person of Indian Origin (PIO)?
 
 

A Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan, if:-

He, at any time, held an Indian passport or
He or either of his parents or grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1956 (57 of 1955) or
The person is a spouse of an Indian citizen or person referred to in a. or b. above
 
Who is a Foreign Institutional Investor?
 
 

FII means an institution established or incorporated outside India, which proposes to make investments in Indian securities and is registered with SEBI. Sub-Account means a person resident outside India, on whose behalf an FII proposes to invest in India. FIIs and Sub-accounts have to obtain registration certificate from SEBI and are governed by the SEBI (Foreign Institutional Investors) Regulations, 1995.

 
Can a NRI / PIO / FIIs invest in mutual fund schemes in India?
 
 

Yes, NRI/PIO/FIIs can invest in mutual fund schemes in India. However, persons residing in any Financial Action Task Force non-compliant countries or territories, United States Person (U.S. Person), corporations and other entities organized under the applicable laws of the United States of America and Residents of Canada as defined under the applicable laws of Canada.

 
Can a NRI / PIO maintain a bank account in India?
 
 

Yes. NRIs / PIOs can maintain accounts in Indian rupees as well as in foreign currency.

 
Can NRIs / PIOs invest foreign currency in mutual fund schemes in India?
 
 

No. Only Indian rupees can be invested in mutual fund schemes in India.

 
In that case, what are the different types of rupee accounts that NRIs / PIOs need to maintain for investing in mutual fund schemes in India?
 
 

The types of rupee accounts that can be maintained by NRIs / PIOs for investing in mutual fund schemes in India are as follows:

NRE Account: Non-Resident (External) Rupee Account
NRO Account : Non-Resident Ordinary Rupee Account
FCNR (B) : Foreign Currency (Non-Resident) Account (Banks)
SNRR : Special Non-Resident Rupee Account
 
What is the distinction between NRE and NRO Accounts?
 
 
Funds held in NRE accounts can be repatriated abroad freely. They can also be used for local payments in rupees.
Funds held in NRO accounts cannot be repatriated abroad. They can be used for local payments in rupees only.
 
Do NRIs / PIOs require any approval from the RBI to invest in mutual fund schemes?
 
 

No special approval is required. NRIs/FIIs have been granted a general permission by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000] for investing in/redeeming units of the schemes subject to conditions set out in the aforesaid regulations.

However, PIO's need to attach a copy of the PIO card with the application form at the time of investing.

 
Who Issues PIO Cards? How to get a PIO Card?
 
 

Person of Indian Origin (PIO) Cards are issued by Ministry of External Affairs (CPV Division), Government of India to persons of Indian origin through Indian missions abroad. Specific information on rules, forms, particular offices, missions is available on the website www.passport.nic.in

 
What is the mode of payment for buying units of an Indian mutual fund scheme?
 
 

Repatriation Basis

Payments by NRIs / Persons of Indian Origin (PIO) residing abroad / FII may be made either by way of Indian Rupee drafts or cheques by means of (i) inward remittance through normal banking channels; or (ii) out of funds held in NRE / FCNR account payable at par and payable at the cities where the Official Points of Acceptance are located.

In case of Indian Rupee drafts purchased abroad or subscription through NRE/FCNR Account, an account debit certificate from the bank issuing the draft confirming the debit / Foreign Inward Remittance Certificate (FIRC) should also be enclosed.

In case the debit certificate / FIRC is not provided, the AMC reserves the right to reject the application of the NRI investors.

Non Repatriation Basis

NRIs or Person of Indian origin residing abroad investing on a non-repatriable basis may do so by issuing cheques / demand drafts drawn on Non-Resident Ordinary (NRO) account payable at the cities where the Official Points of Acceptance are located.

 
How will the redemption / dividend proceeds be paid?
 
 

If the investor has provided sufficient details for electronic credit, the Fund will give direct credit for redemption/dividend proceeds into the investor’s bank account and such instruction will be adequate discharge of the Fund towards the said payment. In case the credit is not effected by the Unitholder’s banker for any reason, the Fund reserves the right to make the payment by a cheque/ Demand Draft. The cheque will be payable to the first unitholder and will include the bank account number.

Redemption proceeds/repurchase price and/or dividend or income earned (if any) will be payable in Indian Rupees only.

 
How can the redemption proceeds be repatriated?
 
 

Where the investment is made out of inward remittance or from funds held in the NRE account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) will be credited to the specified NRE account.

The same can be remitted abroad freely by the investor.

 
What about redemption proceeds from investments made on a non-repatriable basis?
 
 

Where the purchase of units is made on a non-repatriable basis, the maturity proceeds / repurchase price of units (after payment of taxes) will be credited to the specified NRO account of the investor.

 
Are redemption proceeds transferred to a NRI's / PIO's overseas account?
 
 

No. Redemption proceeds will be transferred to a specified NRE / NRO account only.

 
What are the tax provisions for investments in mutual funds by NRIs/PIOs?
 
 

For details on the same, please click here.

 
What is the tax liability for income received from your mutual funds?
 
 

As per Section 10(35) of the Income Tax Act, 1961, income received from mutual fund units specified under Section 10(23D) is exempt from income tax in India and the mutual funds are subject to deduction of distribution tax in debt oriented schemes. Hence all dividends are tax-free in the hands of non-resident investors and no TDS is applicable on the same.

 
Can NRIs / PIOs avail of the indexation benefit?
 
 

Yes. Indexation benefit can be avail in respect of units held for more than 12 months.

 
Can a Power of Attorney (POA) holder invest on behalf of the NRI investor?
 
 

Yes. The POA holder needs to sign applicable documents and then he can execute transactions on behalf of the NRI investor.

However, POA holder must submit the original POA or copy, duly notarized along with first time purchase.

 
Is nomination by NRIs / PIOs allowed?
 
 

Yes.

 
Can a resident Indian have an NRI as nominee?
 
 

Yes, the same rules apply for nominees to resident Indian accounts. An NRI can be a nominee to an account which is in the name of a resident Indian.

 
Do NRIs / PIOs have to comply with 'Know Your Client' (KYC) guidelines?
 
 

Yes. For details on the same please click here.

 
What is the procedure to change the Tax status from NRI to Resident Indian or vice-versa?
 
 

The investor needs to submit the following documents to the AMC for a change in tax status:

  1. Letter from the investor mentioning the changes
  2. KYC acknowledgment letter reflecting the change in status
  3. Cancelled cheque of the new bank account with Resident Indian (RI) or Non-Resident Indian (NRI) status
 
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