Non-resident Indians or NRIs are Indian citizens or persons of Indian origin who leave the country to reside abroad for professional and other purposes. These are people who stay outside India for 182 days and more in a particular financial year and 365 days and more throughout the earlier four financial years. However, NRIs can still invest in the country and varied market instruments.
NRIs usually preferred investment options like real estate and NRE Deposits previously. They can now invest in mutual funds as well. NRIs should be totally KYC adherent prior to investing in mutual funds. NRIs can make investments in this channel provided they adhere to the FEMA regulations. Mutual fund houses cannot take investments made in foreign currency. Also, NRIs should open their NRO/NRE accounts at Indian banks in order to deploy investments accordingly. Investments deployed through the NRE accounts are repatriable without hassles although this is not the case for investments made through NRO accounts. NRIs also have to provide copies of foreign address proof and passport to the mutual fund organization.
Post submission of documents, in case the NRI is coming to India, the IPV or in-person verification should be completed at the AMC, CAMS, distribution house or Karvy. NRE (Non-Resident External) accounts are used for the transfer of foreign income to India and there are foreign exchange fluctuation risks linked to the same. There is no repatriation limit and the interest which is earned is tax free. NRO accounts are those that ensure management of NRI income that is earned in India itself and there are caps on repatriation. The interest earned here is taxable.
A POA (Power of Attorney) Holder can be delegated by the NRI investor for investing and redeeming of mutual funds on behalf of him/her. The POA holder should submit the POA original or notarized copy to the mutual fund firm. Upon registration of the POA, the holder can function smoothly. NRIs in the United States and Canada also have extra regulatory and compliance linked limits. They cannot invest in all mutual fund products in India. However, most AMCs can take investments from NRIs who are located in these countries. You should check with the mutual fund house whether it accepts investments from those residing in Canada or the United States. NRIs should declare their investments as well.
NRIs can invest in debt or equity mutual funds. The gains may be short-term or long-term. The taxation rate usually depends on the investment tenor and mutual fund type. Taxation for LTCG (long-term capital gains) will be 10% from the 1st of April, 2018, onwards for gains exceeding Rs. 1 lakh per annum. Short term capital gains is 15% on equity mutual funds. For debt funds which have tenors lower than 3 years, the gains are added to the income of the NRI and taxed as per the prevalent slabs. In case the debt mutual funds are held onto for more than 3 years, long term capital gains tax will be 20% with indexation. Minus indexation, this will be 10%.