What NRIs need to know about investing via mutual funds in India

With India ranking amongst the fastest growing economies in the world and its per capita investments rising, it is regarded as the country to bet on. In the years to come, we could see immense wealth creation for people investing in India, including non-resident Indians (NRIs).

NRIs intending to invest in India have two major advantages: the benefit of earning higher returns and access to possibly the highest growth market in the world. Investing in India offers a lucrative opportunity to diversify their investment portfolios.

As projected by a recent report by Jefferies, India is poised to become the third largest economy by 2028. India is also the fifth largest equity market in the world, with an estimated equity market cap of more than $5 trillion. This is expected to touch $10 trillion by 2030.

Considering the vast potential of growth in India, mutual funds have become an ideal vehicle for investments for NRIs looking to create a portfolio that can deliver long-term returns. Additionally, living abroad and not having real-time information on the markets can be a limiting factor, and this is where a professional fund management team managing a mutual fund is greatly advantageous.

Also read: How family trusts can help senior citizens and their NRI children manage properties in India

Investing in mutual funds – NRIs’ requirements and challenges

Limited access to expertise:  Living overseas, most NRIs find it challenging to get access to investment experts who can collaboratively work, customise and make informed investing decisions jointly through virtual meetings.

Dedicated service support: An investment platform that provides a dedicated support team adept at handling complexities of NRI documentation for tasks like KYC registration, bank detail updates or nominee updates in investment folios can be a big differentiator and can greatly add to the investing experience for NRIs.

Seamless investment platform: NRIs require a dependable and efficient tech investment platform that simplifies the investment process, offering a seamless transaction experience. Such a platform should integrate processes for documentation, transactions and easy portfolio rebalancing. A reliable tech-driven platform that supports smooth onboarding, secure transactions and personalised support can make the investing journey for NRIs wholesome and value driven.

Regulations, taxation and repatriation rules for NRIs

Before investing in mutual funds, NRIs should be aware of the taxation rules. Short-term and long-term capital gains taxes are applicable and are at par with resident individuals. For equity funds, the applicable slab for long term capital gains tax is 12.5 percent and short-term capital gains are taxed at 20 percent. Debt funds are taxed as per the prevailing income tax slab of the individual. For NRIs specifically, any long-term or short-term capital gains tax is deducted at source at the time of redemption.

Some country-specific restrictions exist for NRI investors as well. For example, NRIs from the US and Canada might encounter restrictions on investing in some specific fund houses. However, some mutual funds do allow investments under certain conditions, ensuring accessibility for NRIs based in these countries.

As for repatriation rules, NRIs can invest in mutual funds on a repatriable or non-repatriable basis. If one invests through an NRE account, all the investment proceeds are fully repatriable. However, if one invests from an NRO account, then the proceeds are repatriable only up to $1 million cumulatively for all NRO accounts held in India in the financial year.

Also read: Banking for NRIs: How to manage your accounts while relocating abroad

The importance of investment expert

While most robo advisory platforms have solved the problem of geographic reach and transaction convenience, they do not provide the consultative approach and collaborative decision-making that a person needs to customise their investments to their needs in order to meet their financial goals.

This is where it becomes critically important to have the best investing experts and a trusted, process-led technology platform assisting you on your investing journey.

Investing without a customised investment plan could be akin to a doctor prescribing medicines without diagnosing the symptoms. A trusted investment expert would periodically review the portfolio and be able to provide recommendations on gaps that need to be covered for goal achievement.

NRIs being away from India end up compromising on customisation and human expertise as most investment platforms fail to provide an expert who can manage their relationship virtually, extend service support and ease paperless transactions. Compromising on any of these core requirements can derail a person’s investing and wealth creation journey, and this should be non-negotiable.

The author is Co-founder & CEO, FinEdge.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.