Why NRIs Should Invest in Mutual Funds in India

Non resident Indians or NRIs can invest in the Indian mutual fund industry with a vision to grow their wealth and diversify their assets over time. Besides, while the positives of living abroad are numerous, the mutual fund landscape in India, presents an attractive option for NRIs. In this regard, one of the standout features of Indian mutual funds for NRIs is its potential for foreign exchange gains. It allows NRIs to offset losses from currency rate changes and also enjoy the ease of online investments from anywhere across the world.

NRIs look for investment opportunities in India in order to secure great returns from India’s emerging market economy. Moreover, the Indian mutual fund market comes with an array of investment options such as equity stocks, fixed deposits and mutual funds. Additionally, for NRIs who want to explore the mutual fund market in India, the first step requires you to set up a Non Resident Ordinary or NRO account, or a Non Resident External or NRE account with a compatible bank based in India. This is integral as asset management companies based in India are not allowed to accept investments in any foreign currency as per the latest regulations. Hence, all such investments made by a non resident Indian must also be in the official Indian currency, rupees.

• Indian mutual funds provide NRIs with a wide range of investment choices such as equities, hybrid, and debt funds, perfect for diversification.
• NRIs need to open an NRO or NRE account to invest in Indian mutual funds, with all investments made in Indian Rupees and adhering to KYC and FEMA regulations.
• NRIs can benefit from tax efficiency through Double Tax Avoidance Agreements that minimise double taxation on capital gains.

NRIs can invest in Indian mutual fund schemes in two easy and accessible ways. These include the following:

Direct investment

The direct investment approach requires the NRI to submit their duly filled application and the Know Your Customer or KYC documents for verification. This validation process may also need you to perform an verification in person. For this, you may also be asked to visit the Indian embassy in the country of your residence with the relevant and required documents.

Also read: What Is XIRR in Mutual Funds

Power of attorney

NRIs can also choose to invest in the mutual fund industry by assigning the power of attorney to a trusted person residing within the Indian borders, who can make the investment decisions on your behalf. Moreover, this approach requires the signatures of the NRI and as well as the POA holder on all your KYC documents and the application form.

Here are a few of the key things to consider before you invest in the Indian mutual fund industry as an NRI:

Confirm Your NRI Status

Before you invest in any mutual fund scheme it is key to ensure you fit the definition of an NRI as per the Foreign Exchange Management Act. In this regard, you are classified as a non resident Indian, if you have stayed in the country for less than 182 days in the previous financial year or if you have been here for less than 60 days during the previous year and less than 365 days during the past 4 years in total.

Follow the investment procedure

Here are the few essentials NRIs should keep in mind before investing in Indian mutual fund schemes:

• Open an NRO and NRE account: To invest in mutual funds in India you need to open either a NRO or NRE account with an Indian bank. An NRO account helps you manage income earned in India, while an NRE account allows you to convert foreign earnings into Indian currency.
• KYC compliance: Keep the required documents such as a copy of your passport, PAN card, photograph, bank statements, and address proof, ready for KYC verification processes.
• Foreign Inward Remittance Certificate: You must obtain an FIRC to verify the source of your capital before you can invest in Indian mutual funds as an NRI.
• FEMA regulations: All NRI investments must be in compliance with FEMA along with a declaration from NRIs to confirm your adherence to all applicable Indian laws and regulations.
• Redemption process: When redeeming your mutual fund investment, the withdrawn amount is credited to the NRE or NRO account registered, post the deduction of applicable taxes.

A common concern for NRIs is the potential for double taxation on investment gains in India. In this regard, India has established Double Tax Avoidance Agreements or DTAA with several countries. This helps minimise tax liabilities for Indian citizens both domestically and abroad.

The following table outlines the tax implications as per the updated tax regime introduced by the Union Budget 2025:

Alongside the above, the Foreign Account Tax Compliance Act or FATCA mandates that all Indian and NRI investors are required to file a FATCA self declaration to ensure compliance with the existing regulations.

Mutual funds provide non resident Indians with a flexible investment opportunity in India. With benefits such as diversification, low effort, and the potential for high returns, they are a great addition to any investment portfolio. As an NRI, investing in mutual funds not only helps you grow your wealth but also allows you to contribute to India's economic growth story.

Visit the easy to use Bajaj Finance mutual fund platform and explore over 1,000 mutual fund schemes. Use the Mutual Fund Calculator and compare mutual funds and their returns prior to investing.