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NRIs are allowed to invest in mutual funds in India- subject to requisite compliances of Foreign Exchange Management Act (FEMA). However, some Fund Houses do not accept mutual fund applications from NRIs pertaining to Canada and the USA.
Mutual Fund Houses in India are not allowed to accept investments in foreign currencies. Hence, the first step to investing in the Indian mutual funds is to open an NRO / NRE account with an Indian bank. Investments done through NRO account are not freely repatriable whereas the investments done through NRE account are freely repatriable.
If you have made the payment via cheque or a demand draft or through online transfer from an NRE account, then you must provide a foreign inward remittance certificate (FIRC) to the Mutual Fund House. In case FIRC is not available a statement of the NRE account reflecting the debit transaction for investment or a letter from the bank confirming the source of the transaction as NRE account can also be submitted. It is important to note that the investor needs to submit the proof of payment from the NRE account at the time of each transaction to the fund house, if such transaction has been made through an NRE account.
To complete the KYC process, you must submit self attested copies of all the above mentioned documents to the fund house along with the KYC Form & FATCA Form. KYC is a one time activity and a single KYC can be used to invest across financial instruments in India. Power of Attorney: Another popular method for NRIs is to appoint someone else in India to invest on your behalf. The POA holder can be one of your relatives or friends whom you can trust for your investments. Mutual Fund Houses allow the power of attorney POA holders to invest on your behalf and also make investment decisions. However, signatures of both the NRI investor and POA holder must be present on the KYC documents if you wish to invest in mutual funds in India through this route.
At the time of redemption of your mutual fund units, the Fund House will credit the redemption proceeds to your bank account registered in folio, after TDS deduction if applicable. One may choose to provide relevant documents for the Double Tax Avoidance Agreement of India with your country of residence. If that is registered in the folio, TDS applicability will be as per the DTAA and not as per the Income Tax Act.
For more details of TDS, you may refer to the Tax Reckoner (LINK)
Till the time one maintains the status of NRI, your investment has the right of repatriation of the amount invested and amount earned subject to deduction / payment of applicable taxes.
Submitting local and overseas address proof is mandatory. Hence, one must provide a self attested copy of the proof of local and overseas address along with the application for investment.
The compliance requirements in the United States of America and Canada are more stringent as compared to other nations.
In short, NRIs can choose to invest in his/her home country. The process may have some initial hassles. However, in the long run, the return on investment should be worth it.
Currently, only few fund houses accept mutual fund investment from NRIs residing in the US and Canada. So, there is certainly no reason for you to be left out of investing in one of the fastest-growing economies of the World.