GIFT City Funds
One of the most easily accessible and convenient forms of Investment for NRIs who wish to have a stake in India’s Growth Story are none other than Mutual Funds. Investing in Mutual Funds may sound simple but there are rules that are meant for NRI Investors only, which are different from their resident counterparts.
This blog is a simplified breakdown for NRIs when it comes to mutual fund investments, so that the money can work smartly all the while adhering to compliance across borders.
Account Usage: NRE and NRO
If you are an NRI then you can choose between NRO or NRE account to invest in Mutual Funds.
- Choose an NRE account if you are interested in investing the income that you have earned abroad.
- Choose an NRO account if your investment comes from income that is earned in India.
While both accounts allow mutual funds investments, the choice of the account depends on the source of funds.
Creating Separate Folios for NRE and NRO
Creation of Separate Folios is essential for Mutual Funds Investments, made through either NRE or NRO account. These folios cannot be mixed at all.
For Example: Let’s assume you have invested in ₹ 1 Lakh through NRE, any top-ups or redemptions made later down the line that are related to the folio must be made through the same account type.
Redemption Rules For Mutual Fund Investment
After redemption, the amount is then credited back to the same account from which the initial investment had been made.
- Funds can be fully and freely repatriated abroad for NRE Accounts
- Funds are repatriated under certain RBI limits for NRO Accounts
Taxation Rules
For NRE and NRO accounts, the rules are the same for Residents only, depending on the gains either being long-term or short-term.
The main point of difference is the Tax Deducted at Source (TDS) for NRIs, mutual fund houses deduct TDS before crediting the redemption amounts.
LTCG (Long Term Capital Gains) are taxed 10% for Equity Funds, whereas for Debt Funds, they are taxed with 20% with indexation.
