A robust investment portfolio is essential for effective financial planning throughout life. With India emerging as one of the most vital and rapidly expanding economies worldwide, it offers abundant investment prospects for both resident Indians and non-resident Indians (NRIs). Furthermore, India's economy is diversified across various sectors, catering to the needs of both aggressive and conservative investors.
Non-resident Indians (NRIs) have a plethora of investment opportunities in India, offering attractive returns and tax benefits. Whether in bustling financial hubs like the United States of America, Saudi Arabia, Malaysia, United Arab Emirates, or the United Kingdom, NRIs can leverage various avenues such as NSIP (NRI Systematic Investment Plan), SIP (Systematic Investment Plan) plans tailored for NRIs, and mutual funds specially curated for NRI investors.
Investing in Indian mutual funds presents an excellent avenue for NRIs seeking to diversify their portfolios. These funds cater to the specific needs and preferences of NRI investors, ensuring seamless investment experiences across different geographical locations. With options like NRI Demat accounts and PPF (Public Provident Fund) schemes accessible to NRIs, they can effectively manage their investments while adhering to the regulatory frameworks established by entities like the Reserve Bank of India (RBI), the Foreign Exchange Management Act (FEMA), and the Securities and Exchange Board of India (SEBI).
It’s essential for NRIs to stay informed about the guidelines and regulations pertaining to NRI investments, both in India and in their country of residence. By navigating through these guidelines diligently, NRIs can make informed decisions and optimize their investment strategies for long-term financial growth and stability.
The first question is, are NRIs even allowed to invest in the Indian investment sector? Of course, an NRI can invest in Indian mutual funds if he follows the Foreign Exchange Management Act (FEMA).
Many NRI investors often fear that they will have to pay double tax when they invest in India, especially in mutual fund schemes. But certainly, that’s not the case if India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country.
For Example,
India has signed a DTAA treaty with the US. Hence, an NRI can claim tax relief in the US if he/she has already paid taxes in India. The gains from equity-oriented mutual funds are taxable based on the holding period.
These are the holding periods defined for different types of mutual funds:
| Type | Short-term holding | Long-term holding |
|---|---|---|
| Equity mutual funds | Less than 12 months | 12 months and more |
| Balanced mutual funds | Less than 12 months | 12 months and more |
| Debt mutual funds | Less than 36 months | 36 months and more |
The table below summarizes the tax on the capital gain from mutual funds:
Capital Gain taxation on different types of mutual funds
| Type | Short-term capital gains (STCG) tax | Long-term capital gains (LTCG) tax |
|---|---|---|
| Equity-oriented mutual funds | 15% | 10% without Indexation |
| Balanced mutual funds | 15% | 10% without indexation |
| Debt-oriented mutual funds | As per tax slab | 20% after Indexation |
An NRI is an Indian citizen who resides outside India for employment, business, or any other purpose indicating an indefinite stay abroad.
NRIs are allowed to invest in various avenues such as equities, mutual funds, government securities, real estate, fixed deposits, and certain other financial instruments.
NRIs can open specific types of investment accounts like NRE (Non-Resident External), NRO (Non-Resident Ordinary), and FCNR (Foreign Currency Non-Resident) accounts with designated banks or financial institutions in India.
Repatriation of funds from NRI investments is subject to certain conditions and limits set by the Reserve Bank of India (RBI). Generally, repatriation of funds is allowed within specified limits after complying with necessary documentation and procedures.
