In the last blog, we read about how NRIs can also invest in mutual funds and be part of India growth story.
Now that we know that even NRIs can say “mutual funds sahi hai”, let us understand the modalities around it.
Pre-requisites for mutual fund investments
NRE or NRO Account
Indian Fund Houses are not permitted to accept any investments made in foreign currency. Hence, the first step towards mutual fund investments by NRIs is to open an NRE (Non-Resident External), NRO (Non-Resident Ordinary) or FCNR (Foreign Currency Non-Repatriable) Account with any Indian Bank. This account can be used to route the mutual fund investments. It is important to note that funds in NRE Accounts can be repatriated unlike NRO Accounts.
The next step is to complete the KYC formalities. NRIs need to share the following documents in this regard, along with the application form:
Present residential address
Recent bank statements
(FATCA and CRS declarations need to be made, wherever applicable)
As per the SEBI guidelines, all investors are required to mandatorily complete IPV or in-person verification. This can be done by reaching out to the officials in the Indian Embassy or any such authorized personnel in the current residing country. Upon successful verification and attestation by them, IPV is considered complete. Alternatively, one can do the IPV during the next India visit at the concerned AMC or R&T Agents such as Karvy and CAMS
Ways to invest
There are two ways in which an NRI can make mutual fund investment in India.
One can directly carry out the mutual fund transactions through the normal banking platforms. The application form must indicate whether the investments are repatriable or not.
With the help of an appointed Power of Attorney (POA)
Another investment mode for NRIs is through a POA. They can appoint a Power of Attorney to transact (investment and redemption) on their behalf. The holder of POA needs to submit either the original document granting authority or a notarized copy to the fund house. Upon successful registration of the POA, he or she can invest or take other such decisions related to the mutual fund investments.
In such cases, the KYC document should have the signature of both the NRI investor as well as the POA holder. Also, the individual who is being appointed as POA needs to be KYC compliant.
Mode of payment
The payment for the mutual fund investment can be done through a cheque or draft drawn on the NRE/NRO/FCNR Account. A FIRC (Foreign Inward Remittance Certificate) needs to be shared along with the cheque/draft to verify the source of the funds. In some cases, a letter from the bank to this effect is also accepted as a valid document.
At the time of redemption of the mutual fund units, the AMC will deduct the applicable tax amount and credit the remaining corpus. The proceeds are deposited in the concerned NRE or NRO account of the NRI Investor.
NRIs who stay in USA and Canada
These individuals need to comply with additional regulatory and compliance requirements. According to the FATCA (Foreign Account Tax Compliance Act) guidelines, all financial institutions need to share the complete details of financial transactions (involving a US based person) with the Government of USA. Due to such cumbersome processes and regulations, some fund houses do not take investments from NRIs based in these countries.
Hence, it is important to first check with the concerned Asset Management Company regarding their stance on NRIs staying in US/Canada.
We, at Aditya Birla Sun Life AMC, accept investments of NRI’s residing in USA and Canada where Investor has to sign a declaration format from NRI/PIO Investors. If distributor involved in investment process, he/she too has to provide a declaration. This declaration has to be submitted by the investor every time he/she transacts.
Just because you have become a pardesi, does not stop you from capitalizing on the attractive investment opportunities in your home land. The process is simple and has the potential to generate better returns for you in the long run.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.