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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.
Before understanding SIPs, let’s first understand this -
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.
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.
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.
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 -
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.
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.
Two primary types of accounts facilitate investments by NRIs in India:
With either of these accounts in place, NRIs can easily steer their investments into Indian mutual funds.
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.
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
After the submission of documents, a crucial verification step is undertaken to authenticate the provided information.
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:
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 -
Example - Imagine you started your SIP in January. The following depicts hypothetical investments over three months:
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.
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.
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% |
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 -
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.
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.