Short answer: Yes—NRIs/OCIs/PIOs can invest in Indian mutual funds across equity, debt and hybrid categories. You must invest via NRE/NRO/FCNR accounts, complete SEBI-mandated KYC (including FATCA/CRS), and follow FEMA/RBI repatriation rules. Tax at redemption is deducted at source (TDS) as per current capital-gains slabs and your fund type. (MEA India, Kotak Mutual Fund, AMFI India)
Why this matters
For global Indians, mutual funds offer a professionally managed route to participate in India’s growth without picking individual stocks, with full digital access and SIPs possible from overseas—subject to a few compliance nuances. (Kotak Mutual Fund)
Who can invest? What accounts do you need?
- Eligible investors: NRIs/OCIs/PIOs (country-specific caveats for the US/Canada—see below). (Bajaj Finserv Asset Management Ltd)
- Banking rails: Invest in INR via NRE (repatriable), NRO (non-repatriable) or FCNR accounts. Investments in foreign currency are not permitted. (MEA India, mfs.kfintech.com)
- No PIS needed for mutual funds: PIS is for stock-exchange purchases of shares; MF units don’t require PIS. (Zerodha Support, iNRI)
The step-by-step process (clean checklist)
- Update residential status with your bank & PAN database; open/convert to NRE/NRO/FCNR accounts. (MEA India)
- Complete full KYC (PAN, passport, overseas address, photo, IPV/video-KYC), plus FATCA/CRS self-declaration. Recent SEBI and registrar updates allow NRI KYC portability with relaxations currently available. (Securities and Exchange Board of India, camsonline.com)
- Choose repatriation basis:
- Repatriable: invest through NRE/FCNR; redemption can be remitted abroad.
- Non-repatriable: invest through NRO; proceeds credited to NRO. (MEA India)
- Transact online via AMC portals/registrars (CAMS/KFintech) or MF Utility; SIPs are permitted post-KYC. (camsonline.com, mfuindia.com)
- Optional: Appoint a Power of Attorney (PoA) in India to transact on your behalf (PoA must be KYC’d and registered with the fund/registrar). (mfs.kfintech.com, assetmanagement.hsbc.co.in)
Country-specific caveat: US & Canada-based NRIs
Many AMCs do accept US/Canada NRIs, but some restrict onboarding or require offline forms/self-declarations, largely due to FATCA/SEC compliance. MF Utility provides specific guidance (e.g., USA/Canada declarations) for eligible transactions. Always check the AMC/registrar for your country of residence before investing. (ICICI Bank, mfuindia.com, Value Research Online)
Taxes & TDS at a glance (FY 2025–26)
Recent budget changes altered equity capital-gains rates (effective for transfers on/after 23 July 2024). For NRIs, AMCs/brokers deduct TDS on redemption as per “rates in force,” fund type, and holding period. Key points: (The Economic Times, India Budget)
Equity-oriented mutual funds (≥65% equity):
- STCG (units held ≤12 months): 20%.
- LTCG (units held >12 months): 12.5%, after ₹1.25 lakh annual exemption.
- AMCs apply corresponding TDS on redemption (higher rates may apply if Section 206AB for non-filers triggers). (The Economic Times, The Economic Times, AMFI India)
Debt & other non-equity funds (e.g., many debt funds acquired on/after 1 Apr 2023):
- Gains on “specified mutual funds” (≤35% domestic equity) are deemed short-term and taxed at your slab rate; AMCs typically deduct TDS accordingly (commonly 30% for such STCG). (AMFI India, The Economic Times)
Dividends from mutual funds (all investors, including NRIs):
- Taxable in India; TDS @ 20% (or treaty rate if lower) per Section 196A; no TDS if dividends in a fund are ≤ ₹5,000/year. (AMFI India)
Important: TDS is not your final tax in India; you can claim DTAA credit in your resident country and/or seek refunds in India if TDS exceeds your liability. Rates can vary with surcharges/cess and specific categories—always reconcile while filing returns. (AMFI India)
Quick comparison: NRE vs NRO route for mutual funds
| Feature | NRE (Repatriable) | NRO (Non-repatriable) |
|---|---|---|
| Source of funds | Overseas remittances/foreign income | Indian income (rent, dividends, etc.) |
| Repatriation of redemption | Freely repatriable | Credit to NRO; repatriation subject to limits/procedures |
| Typical use | Build India exposure with future overseas remittance | Deploy Indian rupee cash flows without moving money out |
| Documentation | KYC + FATCA/CRS + NRE bank details | KYC + FATCA/CRS + NRO bank details |
Practical guardrails (what often trips up NRI investors)
- Country restrictions: Confirm US/Canada acceptance and offline requirements before starting. (mfuindia.com)
- Foreign currency: You cannot invest in USD/other FX directly; the transaction must be INR from your NRE/NRO/FCNR. (mfs.kfintech.com)
- KYC status changes: If you became NRI recently, update KYC from resident to NRI and ensure FATCA/CRS is on file; note SEBI’s KYC rule changes and temporary relaxations for NRIs. (Securities and Exchange Board of India, camsonline.com)
- PoA hygiene: Register PoA properly (notarised copy, both signatures, PoA KYC). (assetmanagement.hsbc.co.in)
- Repatriation choice: Decide before investing; switching between NRE/NRO later can be tedious. (MEA India)
Currency effect: converting INR returns to your home currency
Overseas investors should account for INR moves vs. USD/AED/SGD, etc.
USD Return ≈ [(1 + INR Return) × (1 + INR appreciation vs USD)] − 1
Example: If a fund earns 12% in INR and the INR depreciates 3% vs USD, your USD return ≈ (1.12 × 0.97 − 1) ≈ 8.64%.
FAQs (rich snippet friendly)
Can US/Canada NRIs invest?
Yes, but some AMCs restrict; many allow with offline declarations and specific conditions. Check AMC/registrar pages (e.g., MFU’s USA/Canada guidance). (mfuindia.com, Value Research Online)
Is PIS needed to buy mutual funds?
No. PIS applies to secondary-market equity trades, not MF units. (Zerodha Support)
Can I do SIPs from abroad?
Yes, after KYC; set up from NRE/NRO, including via registrars/AMC portals. (camsonline.com)
What is the current TDS on equity MF redemptions for NRIs?
Post 23 July 2024, AMCs deduct 20% on STCG and 12.5% on LTCG (LTCG above ₹1.25 lakh). Debt/specified MF TDS generally follows slab-rate logic (often 30% for STCG). DTAA may reduce your net tax. (The Economic Times, The Economic Times)
Are dividends tax-free for NRIs?
No. Dividends are taxable and subject to 20% TDS (or treaty rate); TDS threshold of ₹5,000 applies for dividends. (AMFI India)
Can a family member invest on my behalf?
Yes, via a PoA registered with the fund/registrar; the PoA holder must complete KYC. (mfs.kfintech.com)
Bottom line for NRI investors
- Yes, you can invest in Indian mutual funds as an NRI—digitally and compliantly.
- Pick your route (NRE vs NRO) upfront for repatriation clarity.
- Finish KYC + FATCA carefully; confirm US/Canada conditions if relevant.
- Know your TDS and use DTAA credits to avoid double taxation.
- Mind currency risk when evaluating performance in your home currency.