Mutual Funds for NRIs: A Guide to Investing Smartly

Can NRIs Buy Mutual Funds in India? 

Yes, as a Non-resident Indian (NRI), you can easily invest in mutual funds in India from the UAE or anywhere else.

However, there is a caveat: you can invest in mutual funds only in Indian rupees. This is because asset management companies (AMCs) in India cannot accept foreign currency investments. 

The solution to this issue — we will see it in upcoming sections. 

NRIs must consider investing in mutual funds after taking into account their investment objective and risk appetite. Notably, mutual fund investments offer higher returns compared to bank fixed deposits. This is because they are market-linked and involve high risk. Additionally, the rate of return depends on the fund type and investment horizon.

Why Should NRIs Invest in Mutual Funds India? 

Here are the key benefits of investing in mutual funds in India for NRIs — 

• Easy investment in the Indian stock market and other instruments 
• Potential for great returns 
• Multiple options available as per your financial goals 
• Diversification of portfolio that lowers your overall risk
• Easy onboarding and investment online 
• Fund management by professionals 
• Rupee cost averaging — buying more units when the price is down and fewer units when the market is high 

Types of Mutual Fund Investments for NRIs 

Different mutual fund categories represent the kinds of securities and the type of return you can expect. 

Here are the major types of mutual funds for NRIs —

• Equity Funds: Primarily, these funds invest in stocks. This way, you can enjoy profits without exposing yourself to the risk of direct investment in equities. You can find various subcategories in this group. For instance, equity mutual funds are further divided as per the market capitalisation of the companies in which the investments are made. 
• Debt Funds: As the name suggests, these mutual funds for NRIs invest in fixed-income securities like Government securities, treasury bills, and corporate bonds. With relatively lower risk, these funds can ensure stable returns. This is suitable if you are a conservative investor.
• Hybrid Funds: These funds invest in both debt and equity instruments in order to balance the ratio of risk to reward. Suitable for investors looking to get the best of both debt and equity funds, these mutual funds are also great if you want to optimise the returns on investment.
• Sector-oriented Funds: Such mutual funds for NRIs are ideal if you are interested in a particular sector (banking, IT, and so on) and want to invest in companies only in that field. 

Besides these broad categories, you can also invest in exchange traded funds, index funds, funds of funds, and much more.

Best Mutual Funds for NRIs in India  

Tabled below are some of the best mutual funds for NRI in India —

How Can NRIs Invest in Mutual Funds? 

As we saw earlier, since AMCs in India can only receive money in Indian Rupees, you, as an NRI, will need to open either a non-resident ordinary (NRO) account or a non-resident external (NRE) account. 

Here’s how you can start investing in the best mutual funds for NRIs — 

• Open an NRE or NRO account.
• Initiate the Know Your Customer (KYC) process. The specifics of this step will depend on whether you want to invest 
  • Directly or 
  • Assign a Power of Attorney (PoA) to a trusted individual in India who will make investment decisions on your behalf. 
  • Note that there may be a requirement for in-person verification. In this case, you may have to report at the Indian embassy in the UAE or any whichever country you reside in. 
• Once done, you can easily start investing in mutual funds in India for NRIs.
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Keep in mind that you must comply with the Foreign Exchange Management Act (FEMA). Furthermore, even though the UAE does not have any personal income taxes, you may have to incur taxes in India as per your investment.

Things to Keep in Mind Before Investing in Mutual Funds in India for NRIs 

To make the most of your investment, take note of the following points — 

• Compare different types of mutual funds
  Even if you have a certain idea about which mutual fund type you want to invest in, it’s always a good idea to explore different categories of funds. This can help you get an idea of different types, which you can use to diversify your investment.

• Understand your risk appetite
  If you can tolerate higher risks for higher returns, you can go for small-cap funds. However, if you want stable returns without much risk, you can go for debt mutual funds or large-cap funds.

• Track the performance of the mutual fund 
  Although the past performance of mutual funds for NRIs doesn’t exactly tell its future returns, it’s still a good idea to check how the fund performed in the last 3-5 years.

• Check the expense ratio 
  Expressed in percentage, this ratio tells how much the mutual fund company will charge you to maintain your investment. 

• Read withdrawal policies carefully
  Most mutual funds allow you to sell or buy units on all trading days. However, some funds like ELSS funds may have lock-in periods in which you cannot sell your units. To make sure you don’t face any issues when you want to liquidate your investments, read the policy documents carefully.

• Take into account the exchange rate between the Dirham (AED) and the Indian Rupee (INR)
  As mentioned before, when you invest in mutual funds in India as an NRI, the investment will be done in INR only. This amount will be impacted in 2 ways when you sell it — 

1. Taxation as per the Indian laws
2. Currency exchange rate 

While taxation rates don’t change on a daily basis, the exchange rates between the two currencies can. To avoid any surprises later, make sure to consider the impact of this factor. 

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