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Everything You Need to Know About SIP for NRI

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Just as Indians within the country's borders harness the power of Systematic Investment Plans (SIPs) to grow their wealth, Non-resident Indians (NRIs) too have the opportunity to capitalise on them.

So, what exactly is an SIP? It is an investment strategy where an individual invests a fixed amount at regular intervals, typically in mutual funds. This disciplined approach not only instils a saving habit but also aids in leveraging the benefit of rupee cost averaging, mitigating market volatility.

This article will deep into the nuances of SIP for NRI, shedding light on the processes, benefits, and the best SIP options for NRI investors. If you're an NRI keen on enhancing your investment portfolio, continue reading to unlock all the key details of SIP for your unique needs.

What are SIPs and Mutual Funds?

Before understanding SIPs, let’s first understand this -

What are Mutual Funds?

Mutual funds are investment vehicles that pool together money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, these funds aim to provide returns based on the performance of the invested assets.

What are SIPs in Mutual Funds?

An SIP (short for Systematic investment plan) is a method by which investors put a fixed amount of money at regular intervals into a mutual fund. Instead of investing a lump sum, SIPs allow investors to buy units on a set date every month.

How Do Mutual Funds and SIPs differ?

While mutual funds refer to the actual investment vehicle, SIP is just a way to invest in mutual funds. Think of mutual funds as the car and SIP as the method of refuelling it. One can invest in mutual funds as a one-time investment (lump sum) or use the SIP approach.

Investment Plan

Can NRIs Invest in SIP in India?

Yes, NRIs and PIOs can indeed invest in SIPs in India. The Reserve Bank of India (RBI) has provided general permission under Schedule 5 of the Foreign Exchange Management Regulations, 2000, allowing NRIs/PIOs to invest in or redeem units of mutual funds, with certain conditions.

Investments can be made in two ways -

  • Repatriable Basis: Here, investments are made through an NRE or an FCNR Bank Account in India. Mutual funds, compliant with SEBI regulations, can receive the investment either by inward remittance or debit to an NRE/FCNR account. The returns can be remitted back or credited to the NRE/FCNR account after tax deductions.
  • Non-Repatriable Basis: This allows mutual funds to offer schemes where the investment is made by debiting an NRO account of the NRI.

Notably, while most NRIs and PIOs can invest without any special permissions, Overseas Corporate Bodies (OCBs) and FIIs require prior approvals before investing in mutual funds.

How can NRIs Invest in SIP in India?

For NRIs looking to invest in the Indian financial market through SIPs, there's a structured process that ensures legitimacy and compliance with Indian regulatory norms.

Banking Essentials for NRI Investments

Two primary types of accounts facilitate investments by NRIs in India:

  • Non-Resident Original Account (NRO): This account allows NRIs to manage their earnings in India.
  • Non-Resident External Account (NRE): It's primarily for NRIs wanting to repatriate funds back to their foreign account.

With either of these accounts in place, NRIs can easily steer their investments into Indian mutual funds.

The Roadmap to SIP Investment

Before stepping into the world of SIPs, NRIs need to get themselves registered with RTAs. These agents maintain comprehensive records of Mutual Fund Investors. Renowned RTAs in India include Computer Age Management Services (CAMS) and Karvy. 

Several digital platforms and wealth management firms simplify this process by assisting NRIs in handling registration and KYC documentation.

KYC - Know Your Customer

Online KYC Process: This digital process allows NRIs to meet their KYC requisites for Indian Mutual Fund Schemes. It involves uploading necessary documents online, followed by In-Person Verification (IPV).

Document Checklist

  • Completed KYC form with a signature.
  • Self-attested copies of Passport and PAN Card
  • Address proof showcasing both the correspondence and overseas addresses of the NRI

In-Person Verification (IPV)

After the submission of documents, a crucial verification step is undertaken to authenticate the provided information.

  • Offline Method: Here, NRIs either visit an authorised office or officials visit the NRI's home or office to cross-check the original documents with the submitted copies.
  • Online Method: Gaining popularity in today's digital age, this entails a video call with authorised personnel. During this call, officials may query about the details shared in the KYC form. Keep in mind that any inconsistency or suspicion can lead to application rejection.

Key Benefits of SIP for NRI

For Non-Resident Indians looking to invest in the Indian market, Systematic Investment Plans (SIPs) emerge as an attractive avenue. These plans not only cater to the disciplined investment needs of NRIs but also offer a plethora of benefits that can maximise returns and provide convenience.

Mentioned below are some of the key advantages of choosing SIPs for NRI investors:

  • Higher Returns: SIPs help NRIs invest regularly, irrespective of market conditions. This systematic approach can yield higher returns over time, especially when the market rises, since the invested money has more exposure to potential growth.
  • Compounding Power: One of the most significant benefits of SIPs is the power of compounding. As NRIs invest over an extended period, the interest earned on the principal gets reinvested. Over time, this compounding effect can lead to substantial growth in investments.
  • Flexibility: SIPs offer flexibility to NRIs. Investors can choose the amount they wish to invest and the frequency – be it monthly, quarterly, or annually. They also have the liberty to increase, decrease, or even stop their SIP contributions as per their financial situation.
  • Profits from Rupee Appreciation: Currency value plays a pivotal role in international investments. If the Indian rupee appreciates against the currency of the NRI's resident country, there's a potential for higher returns when the investment is converted back to the foreign currency.
  • Easy to Manage: Finally, SIPs are pretty user-friendly. With digital platforms and wealth management services tailored for NRIs, managing SIP investments becomes hassle-free. These platforms often provide timely updates and insights, and allow for easy tracking and modifications.

How Does SIP for NRI Work?

Systematic Investment Plans (SIPs) operate on a straightforward principle, making them accessible and easy to understand. For an NRI, the concept remains the same, although the investment is often influenced by currency dynamics.

 Here's a step-by-step guide on how SIPs for NRIs function -

  • Choosing an Investment Amount - Firstly, decide on an amount that you wish to invest regularly. This could be a monthly or quarterly commitment. For instance, you might opt to invest AED 500 every month.
  • Selecting a Mutual Fund - Based on your financial goals, risk appetite, and investment horizon, choose a mutual fund scheme that aligns with your objectives.
  • Bank Account Deductions - Once the SIP is set up, every month (or as per the chosen frequency), an amount of AED 500 will be auto-debited from your NRE or NRO account and invested in the selected mutual fund.
  • Obtaining Mutual Fund Units - The amount that you invest is used to buy mutual fund units at the prevailing Net Asset Value (NAV). So, if the NAV of the mutual fund in a particular month is 10 AED/unit, your 500 AED would buy you 50 units.
  • Compounding and Currency Dynamics - Over time, the power of compounding can play its part, and the number of units you own increases as you continue investing. Additionally, currency dynamics come into play. If the Indian rupee weakens compared to the AED, you get more rupees for your dirhams, which could lead to buying more units for the same AED 500.
  • Rupee Cost Averaging - Since you're investing a fixed amount regularly, you buy more units when the NAV is low and fewer units when the NAV is high. This averages out the purchase cost over time, potentially mitigating the risks associated with market volatility.

Example - Imagine you started your SIP in January. The following depicts hypothetical investments over three months:

  • January: NAV is 10 AED/unit. For your 500 AED, you buy 50 units.
  • February: NAV drops to 9 AED/unit. Now, your 500 AED fetches you approximately 55.56 units.
  • March: NAV rises to 11 AED/unit. Your 500 AED gets you around 45.45 units.

Despite the fluctuations in NAV, regular investments ensure you don't miss out on potential profitable opportunities. Over a more extended period, this could lead to significant gains.

How are NRI Investors Taxed?

For NRI investors eyeing Indian mutual fund schemes, understanding taxation is crucial. One prevalent misconception is the fear of double taxation. Fortunately, NRIs don't necessarily face this challenge, provided that there's a Double Taxation Avoidance Agreement (DTAA) between India and the investor's resident country. With DTAA in place, NRIs are safeguarded from being taxed twice on the same income.

Here's a simple breakdown of the capital gains tax rates for mutual funds for NRI investors:

Type of Funds Short-Term Capital Gains (STCG) Tax* Long-Term Capital Gains (LTCG) Tax*
Equity-oriented mutual funds 15% 10% (No Indexation benefit)
Balanced Mutual Funds 15% 10% (No Indexation benefit)
Debt-oriented Mutual Funds According to the individual's tax slab 20% (With Indexation benefit)

* Standard terms and conditions apply.

Important: It's crucial to remember that tax laws are dynamic and that the benefits are subject to changes. For this reason, it's always advisable for NRIs to consult with tax experts or financial advisors to understand the current tax implications before making investment decisions.

Investment Plan

Best SIP for NRI in India

Tabled below are some of the best SIPs for NRIs in India – 

SIP Plans Type 3 Year 5 Year
Aditya Birla Sun Life Medium Term Plan Debt Fund 8.39% 9.13%
Aditya Birla Sun Life Savings Fund Debt Fund 7.53% 8.03%
Aditya Birla Sun Life Short Term Fund Debt Fund 7.83% 8.37%
Axis Blue Chip Fund Equity Fund 7.53% 5.92%
Axis Focused 25 Fund Equity Fund -9.74% 7.66%
Birla SL Balanced '95 Fund Balanced Fund 9.42% 16.83%
Birla SL Equity Fund Equity Fund 13.70% 21.78%
DSP BlackRock Midcap Fund Equity Fund 16.77% 25.68%
DSP Equity Fund Equity Fund -9.97% 3.25%
DSP Strategic Bond Fund Debt Fund 7.70% 8.10%
Edelweiss Large & Mid-cap Fund Equity Fund 1.70% 2.90%
HDFC Balanced Balanced Fund 10.65% 18.96%
HDFC Mid Cap Opportunities Fund Equity Fund 14.84% 26%
HDFC Prudence Fund(G) Balanced Fund 9.02% 16.56%
HDFC Small Cap Fund Equity Fund 21.52% 24.31%
ICICI Prudential Balanced Advantage Fund Balanced Fund 9.16% 14.39%
ICICI Prudential Equity & Debt Fund Equity Fund 11.11% 17.48%
ICICI Prudential Value Discovery Equity Fund 7.34% 21.25%
Kotak Standard Multicap Fund Equity Fund -1.28% 3.56%
L&T India Prudence Fund Balanced Fund 10.03% 18.36%
L&T Low Duration Fund Debt Fund 6.12% 7.49%
Mirae Emerging Bluechip Fund Equity Fund 1.80% 8.1%
Motilal Oswal Focused 25 Fund Equity Fund -8.25% 3.69%
Nippon India Low Duration Fund Debt Fund 7.50% 7.73
Reliance Credit Risk Fund Debt Fund 7.87% 8.33%
Reliance Liquid-Treasury Plan(G) Debt Fund 6.82% 7.32%
SBI Bluechip Fund Equity Fund -3.94% 0.95%
SBI Magnum Balanced Fund Balanced Fund 9.1% 17.27%
SBI Magnum Gilt Short Term Debt Fund 8.78% 9.38%
SBI Small Cap Fund Equity Fund 1.8% 8.4%
TATA Large & Mid-cap Fund Equity Fund -2.45% 1%

Things to Remember While Investing in SIP

Before starting with SIP investments in India, NRIs must familiarise themselves with certain crucial aspects related to mutual fund investments. These can be seen as standard operating procedures or guidelines. 

Here are some vital points that every NRI should consider -

  • Foreign Bank Account Details: If an NRI provides details of a foreign bank account as their primary mode of investment, their application is likely to be rejected. It's essential to provide the details of an NRE or NRO account for investments in India.
  • Tax Deduction at Source: Remember that tax will be deducted at the source on capital gains when redeeming mutual fund units. This TDS is applied when you sell your units and realise gains.
  • Rights to Mutual Fund Investments: As long as one maintains the status of an NRI, they have complete rights to the transferability of mutual fund investments. This means they can both repatriate the principal amount invested as well as any earnings from the mutual fund schemes.
  • Compliance in the USA and Canada: The regulations for compliance requirements are notably stricter for residents of the USA and Canada. For instance, under the FATCA norms, financial transactions of every individual, including those US residents serving in the US government, must be disclosed by financial institutions.
  • Common Reporting Standard (CRS) Check: Before venturing into the Indian Mutual Fund schemes, NRIs should determine if they reside in one of the ninety countries that have signed the CRS. The Common Reporting Standard mandates that countries exchange financial account information of residents, aiming to combat tax evasion.

Being well-informed and understanding these key points can help NRIs make smoother and more profitable investments in Indian mutual funds. Always consider seeking advice from financial experts to navigate the nuances of SIP investments effectively.

To Conclude

Systematic Investment Plans (SIPs) stand as a resilient and productive financial instrument for Non-resident Indians (NRIs) to enhance their investments. SIPs offer a disciplined approach to investing, effectively minimising the risks associated with market volatility through rupee cost averaging.

This article comprehensively unpacked the intricacies surrounding SIP for NRIs — from the fundamental understanding of mutual funds and SIPs to the tax implications and best SIP options available.

As the global diaspora of Indians continues to grow, it's imperative for NRIs to remain informed about the potential benefits and processes tied to SIP investments in India. To ensure a smooth and profitable experience, it is always recommended to align oneself with the prevailing regulations, engage in periodic consultations with financial experts, and adapt one's investment strategies based on changing market conditions and personal financial goals.

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