Mutual Funds in India
A mutual fund is an investment portfolio where funds are pooled from numerous investors to aggregate returns on the principal over a period. It may be a lump sum plan or a Systematic Investment Plan (SIP). There are different types of mutual funds, to name a few:
- Equity mutual funds
- Debt mutual funds
- Thematic mutual funds
- Liquid mutual funds
The funds are invested in different asset class baskets like:
- Real assets.
An investor in mutual funds buys a unit(NAV)in the fund. This quantity gives the investor ownership in proportion to the extent of the amount invested. Mutual funds are generally meant for the longer-term.
Investment in Mutual Funds by NRIs
The following are the important rules to be mindful of while choosing to invest in mutual funds:
- With strict adherence to the rules of the Foreign Exchange Management Act (FEMA), an NRI can choose mutual funds as an investment option.
- However, applications to mutual funds from persons from Canada and USA are generally complex growing to regulations under FATCA- Foreign Account Tax Compliance Act procedure.
- Mutual fund companies in India may not permit investments in foreign currency. According to another rule of FEMA, one needs to hold a bank account (not the regular bank account) especially as:
- Non-Resident External (NRE) or
- Non-Resident Ordinary (NRO) or
- Foreign Currency Non-Resident (FCNR)
- An NRE account allows the repatriation of funds from India back to the foreign country. However, Funds in NRO can be repatriated upto USD 2 million in a window of 13 months.
Why should NRIs invest in Mutual Funds?
India is a promising economy for aggregating returns on foreign investments.
The advantages that accrue to the NRIs by investing in mutual funds, geo-specific to India are:
Easier Fund Management
Mutual funds provide the option of investing online. You can be located anywhere across the world and still track and manage your investment in mutual funds. The following can be done with mutual funds online:
- Switch units of various schemes of mutual fund
- Systematic transfer
The process is just a click away even without a physical presence or nativity in India. Furthermore, you can track as well as manage the whole process online itself.
The statements are consolidated and sent via email. The holding statement is also shared via email so the investor can make strategic decisions as to whether any modifications need to be made or not.
Utilization of Currency fluctuations from Rupee Appreciation
Suppose, if the rupee value appreciates against the currency of the NRI’s country, then investors may get benefitted by higher returns.
Let’s say you are an NRI, residing in the US, and you invest 1,000 USD, at an exchange rate of Rs 75 to 1 dollar in a mutual fund in India. You will end up gaining high returns if the rupee value appreciates against the dollar, say Rs.74.
NRIs can also invest in Indian mutual funds offered in the country where they reside.
Long-term investment plans
NRIs away from their home may aspire to come back to a stable, settled or retired life in India. In such cases, investment in mutual funds helps them to make sure that the money they invested gives them the return they expect to beat inflation.
NRIs visiting their homes once in a while and making long-term investments is what they look for. The investment need not be constantly reviewed but can be tracked and monitored. The investment is made in various asset classes like equity, debt, or liquid funds, thus giving a diversified portfolio.
It may be quite challenging for NRIs to be aware of the laws and conditions applicable in India about investing in mutual funds. It may be even more challenging to know regarding the fund’s performance and decide what best suits their needs.
It is best to partner with a professional advisory like Rurash Financials, to get professional management of their hard-earned money.
We have a separate team to specially cater to the NRI segment. We take care of your:
- Legacy planning,
- Retirement planning,
- Legal work
- trustee and concierge services
This enables NRIs to enjoy the fruits of their money with no tension.
Diversification via mutual funds
NRIs generally prefer investing in conservative investments like Bank Fixed Deposits (FDs) as they come for a short visit over shares, which may be difficult, cumbersome and involve paperwork. FDs offer relatively higher stability, however, the return is low.
Hence, mutual funds give the option of stability and higher return. With a diversified portfolio that invests in many sectors, they can easily enjoy the luxury of balancing with equity and the stability of debt funds. The online platforms give a thorough insight into how well they are performing. The management of funds by professionals like Rurash Financials allows them to sit back and accrue the best returns on investment.
Taxation for NRIs
NRI investors generally fear Double Taxation while investing in mutual funds in India. Tax on investment in the mutual fund is not applicable, if and only if the Double Taxation Avoidance Treaty (DTAA) is signed between India and the country of residence.
Rurash Financials have a specialized team to address such needs. We strive to ensure significant returns from the ideal investments to our clients.
- Until one is an NRI, the repatriation of the amount invested and the amount earned is allowed.
- It is mandatory to submit an attested proof of residence where the NRI currently resides along with the application form.
- In terms of the requirements of compliance, Canada and the United States of America are comparatively more strict and stringent.
- According to FATCA guidelines, all financial institutions have to submit details of all the financial transactions concerning an American citizen with the US Government.
- If the NRI is a resident of a country that has signed the Common Reporting Standard (CRS), it should be declared. CRS is a reporting system to manage tax evasion globally.
The Final Word
NRIs can easily invest in the mutual fund industry in India with adequate systems in place. The Return on Investment (RoI) in the long term, maybe actually be higher. With the fast pace at which India is growing, it is prudential to invest and make the most of the growth.
The online amenity allows NRIs to keep track and collaborate where Rurash Financials helps them with high transparency and customized investment options.
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