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Six Steps for NRIs on How to Invest in Mutual Funds

NRIs can invest in mutual funds in India – as long as they adhere to the Foreign Exchange Management Act (FEMA). Here are few steps that will smoothen your investment process:
1.      Open an Account
An NRI needs to open an NRE or NRO account. NRIs can invest in repatriable or non-repatriable basis using funds from the NRE or NRO accounts respectively.
2.      Get KYC Done
 Even if an NRI has already done a complete Know Your Client process, s/he still needs to do KYC again after achieving non-resident status. Important documents required for NRI Mutual Fund investment KYC includes PAN Card, Proof of Foreign Address Residence, Passport and Cancelled Cheque of NRE/NRO Account.
3.      Two Ways to Invest
Once KYC is completed, an NRI can start making investments into domestic mutual funds as an NRI investor. There are two routes to do that—directly through normal banking channels or via Power of Attorney (PoA) authorized to a resident Indian with KYC process done.
4.      The Redemption Procedure
To redeem his/her investments an NRI has to follow the redemption procedure mentioned by the fund. But do remember that different fund houses have different procedures for redemption by NRIs. The redemption proceeds will be credited to the NRE/NRO bank account of the investor.
5.      Taxation Rules for NRI Mutual Fund Investments
Taxation rules of mutual funds for resident and NRI investors are almost exactly the same. For example, dividends are tax-free in the hands of the investor whether resident or NRI. NRIs may be able to claim Double Taxation Avoidance Treaty (DTAA) benefits on the TDS deducted and tax paid in India against the tax payable in their country of residence.
6.      Exception for US and Canada Investors
Many fund houses in India don’t allow NRIs from US and Canada to invest in their schemes because of the cumbersome compliance requirements under the Foreign Account Tax Compliance Act (FATCA). They come with up certain conditions on which they allow investors based in the USA and Canada to put money in their schemes. For example, ICICI Prudential AMC, or SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client.

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