ULIPs and mutual funds are two popular yet distinct investment avenues, each coming with its unique set of benefits and drawbacks. Know which one is better for your individual needs and preferences.
Mutual funds for NRIs might just be the key to your financial success if you're seeking lucrative returns with calculated risks. However, as with most investment instruments, it’s necessary to get a grasp on the fundamentals, functioning, benefits, and other aspects of mutual funds.
Before diving into the enticing world of NRI mutual funds, let's unravel the basics and discover what they truly are.
Imagine a potluck where each guest brings a dish. In mutual funds, investors are those guests, pooling their money to create a diversified portfolio. This potluck of funds is then entrusted to a professional money manager, whose mission is to strategically invest in a variety of assets, such as stocks, bonds, and money market instruments.
The goal? To generate capital gains and make your investment grow.
Unlike buying individual shares, when you invest in a mutual fund for NRI, you own a slice of the entire portfolio. To determine the value of your share, mutual funds have a Net Asset Value Per Share (NAVPS), which settles at the end of each trading day. This means you don't have to worry about market fluctuations during the day; it's all sorted out when the dust settles.
Now that we've dipped our toes into the mutual fund pool, let's explore the tax implications for our Indian investors. In India, the Securities and Exchange Board of India (SEBI) sets the guidelines for taxing mutual funds for NRIs.
There are two main types of returns on mutual funds: dividends and capital gains.
Let's take a closer look at the types of NRI mutual funds and their taxation in India -
Can non-resident Indians (NRIs) ride the mutual fund wave? Absolutely! NRIs can invest in mutual funds in India by opening an NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) account.
These accounts are necessary because NRIs cannot invest with a regular savings account under the Foreign Exchange Management Act (FEMA), and they must invest in Indian Rupees.
However, NRIs living in the US and Canada may encounter some obstacles due to the Foreign Account Tax Compliance Act (FATCA), which requires tedious paperwork. But fear not, for there are excellent mutual fund options available to NRIs.
Here are a few noteworthy ones -
The list doesn't end there! NRIs can also explore other mutual funds in India such as -
It's important to exercise personal discretion when choosing a fund. While these options have shown promise, thorough research is recommended.
Another question for us - Can NRIs invest in mutual funds online? The answer is a resounding yes! NRIs can opt for online investment through various channels. But before you dive in, you'll require an NRO, NRE, or FCNR account.
Once you've got the account sorted, you have two methods to kickstart your investment journey:
With this approach, you become the captain of your ship, investing directly in NRI mutual funds without involving a third-party agent. This hands-on approach saves you from brokerage fees, provided you feel confident making investment decisions.
Remember to complete your KYC (Know Your Customer) process here, which involves submitting relevant documents such as a passport, proof of residence, PAN card, and more. NRIs can complete the KYC process by visiting the Indian Embassy in their country of residence.
Don't forget to specify whether your account is repatriable or not during the KYC process.
If you prefer a hands-off approach, you can appoint a professional investor to manage your funds. This investor, often working for a company, will be responsible for making investment decisions on your behalf. However, they're not liable for any losses you may incur.
Under the Power of Attorney method, both the NRI investor and the PoA holders must sign the KYC documents.
While the option for online investment is available, not all fund houses facilitate it. Aditya Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund, and SBI Mutual Fund, for instance, only allow Canada and US-based NRIs to transact offline. If you choose to invest with a cheque or draft, you'll need to attach a Foreign Inward Remittance Certificate (FIRC) to verify the source of funds.
Systematic Investment Plans (SIPs) present another popular investment option for NRIs. These plans allow you to invest a fixed amount at regular intervals and enable disciplined and hassle-free investments. SIPs offer a convenient way to navigate the mutual fund landscape, irrespective of your residency status.
The taxation rules for NRIs and residents of India are similar. For equity mutual funds, investments held for one year or less are subject to a 15% tax rate on short-term capital gains. Long-term investments in equity mutual funds for NRIs are taxed at a rate of 10% on capital gains exceeding Rs 1 lakh.
Non-equity schemes, including debt funds, are taxed differently. Short-term capital gains are taxed at a rate of 30%, while long-term capital gains are taxed at a rate of 20% with indexation.
It's important to note that if your country of residence hasn't signed a Double Tax Avoidance Agreement (DTAA) with India, you may be liable to pay taxes in both countries. However, India has signed the DTAA with the USA, which helps NRIs avoid double taxation on mutual funds in India.
Just like residents of India, NRIs must also adhere to certain regulations and steps before investing in mutual funds -
Alternatively, they may issue a cheque directly to you. Some AMCs also provide the option to credit the funds directly to your NRO or NRE account. However, if you opt for a non-repatriable investment, the redeemed amount can only be credited to your NRO account.
Mutual funds hold incredible potential for both residents of India and NRIs. By pooling your resources with other investors, you can access a diverse range of investment opportunities and maximise your returns. However, whether you choose equity funds, debt funds, or hybrid funds, understanding the taxation and regulations is necessary in order to make informed decisions.
So don't let mutual funds for NRIs remain a mystery. Dive in, explore the options, and embark on a path to financial prosperity. With the right knowledge and a calculated approach, mutual funds can be your passport to long-term wealth creation.
Policybazaar Insurance UAE – Helping you navigate the wilderness of the insurance world!