How Can NRIs Invest in Mutual Funds in India?

Through the right banking setup and documentation, NRIs can invest seamlessly in SEBI-regulated Indian mutual funds. These funds not only allow participation in India’s long-term growth story but also offer disciplined, transparent, and professionally managed investment avenues.

As India moves toward becoming a $30–35 trillion economy by 2047, mutual funds present NRIs with a chance to build wealth in one of the world’s fastest-growing markets, combining liquidity, diversification, and the potential for inflation-beating returns.

Can NRIs Invest in Mutual Funds in India?

NRI investment in mutual funds is fully permitted under the Foreign Exchange Management Act (FEMA). NRIs can invest through their NRE or NRO accounts, depending on the source of funds.

Mutual funds stand out among popular NRI investment options in India, such as real estate and fixed deposits, because they offer:

• High liquidity compared to immovable assets.

• Professional fund management and SEBI oversight.

• Strong long-term performance potential.

• Diversification across asset classes and sectors.

In essence, NRI investment in India through mutual funds combines safety, flexibility, and growth, three pillars that every long-term investor values.

How Can NRIs Invest in Mutual Funds – Step-by-Step Guide

Step 1: Open an NRE or NRO Account

To begin, an NRI must have either of the following:

• NRE (Non-Resident External) Account: For foreign earnings. Fully repatriable, and interest earned is tax-free in India.

• NRO (Non-Resident Ordinary) Account: For income generated in India (such as rent or dividends). It is partially repatriable, and interest is taxable.

These accounts serve as the foundation for any NRI investment in mutual funds and ensure compliance with FEMA regulations.

Step 2: Complete the KYC Process

All investors, including NRIs, must complete Know Your Customer (KYC) requirements by submitting a passport, PAN card, overseas address proof, and FATCA/CRS declarations.
(Note: From 2025, only “KYC Validated” status will be accepted making compliance even stricter.)

Step 3: Choose How to Invest

NRIs can invest:

• Directly online through mutual fund AMCs or banks.

• Through a Power of Attorney (PoA) holder in India who can invest or redeem on their behalf (with signatures verified during KYC).

Step 4: Start Investing

Decide between Systematic Investment Plans (SIPs) — ideal for disciplined, long-term investing — or lump-sum investments. Ensure all investments use the same NRE/NRO account linked to your folio.

Step 5: Redemption and Repatriation

Upon redemption, proceeds are credited to your linked NRE or NRO account.

• From NRE accounts – funds are fully repatriable.

• From NRO accounts – repatriation is allowed within RBI limits and requires documentation.

Taxation Rules for NRIs in Mutual Funds (2025 Updates)

Taxation for NRI investment in mutual funds depends on the fund type and holding period:

Equity / Equity-Oriented Funds:

• Short-Term Capital Gains (held <12 months): 20%

• Long-Term Capital Gains (held >12 months): 12.5% on gains above ₹1.25 lakh annually

Debt / Debt-Oriented Funds:

• Taxed at your applicable slab rate (no indexation benefit for units bought after April 2023).

Additionally, India’s Double Taxation Avoidance Agreement (DTAA) with 85+ countries ensures NRIs don’t pay tax twice, once in India and again in their country of residence.

Points to Consider Before Investing in Mutual Funds as an NRI

Before making your NRI investment in India, keep these in mind:

• Account Type Matters: Choose NRE for foreign income, NRO for domestic earnings.

• FEMA and FATCA Compliance: Stay updated on documentation and declaration requirements.

• Avoid Mis-Selling: Focus on goal-based plans rather than short-term schemes.

• Currency and Tax Impact: Review taxation and repatriation rules for every investment.

• Expert Support: Compliance errors or incorrect fund choices can delay returns, always invest with professional guidance.