Who is a Non-Resident Indian (NRI)?
A non-resident Indian (NRI) is an Indian citizen or a person of Indian origin who
stays abroad for employment, business or vocation outside India, or stays abroad
under circumstances indicating an uncertain duration.
Who is a Person of Indian Origin (PIO)?
A Person of Indian Origin means a citizen of any country (other than Bangladesh
or Pakistan), if the person: (a) at any time held an Indian passport; or (b) or
the person's parents or grandparents were citizens of India; or (c) is a spouse
of an Indian citizen, or of a person referred to in (a) or (b) above.
Who is a Foreign Institutional Investor (FII)?
An FII is an institution established or incorporated outside India which proposes
to invest in Indian securities and is registered with SEBI.
Who is an Overseas Corporate Body (OCB) ?
An OCB includes overseas companies, partnership firms, societies and other corporate
bodies owned predominantly by non-resident persons of Indian nationality or origin
Can an NRI maintain a bank account in India?
Yes. NRIs can maintain accounts in rupees as well as in foreign currency.
What types of rupee accounts may NRIs maintain?
There are 4 types:
1. Non-resident (External) Rupee Accounts (NRE)
2. Non-Resident (Special) Rupee (NRSR) Account
3. Ordinary Non-resident Rupee Accounts (NRO)
4. Non-resident (Non-repatriable) Rupee deposit accounts (NRNR)
What are NRE, NRO and FCNR accounts?
Non-Resident (External) Rupee (NRE). This is a Rupee account from which funds
are freely repatriable. It can be opened with either funds remitted from abroad
or local funds which can be remitted abroad.
Non-Resident Ordinary Rupee (NRO). This is a Rupee account and can be opened
with funds either remitted from abroad or generated in India. These funds are non-repatriable.
However, under certain circumstances, these are allowed to be repatriated.
Fully Convertible Non-Resident Rupee (FCNR). This account is similar to the
NRE account except that the funds are held in foreign currencies and can be maintained
in Pound Sterling,U.S. Dollar, Euro and Japanese Yen. FCNR accounts can be maintained
only in the form of 'term deposits', i.e. a deposit kept for fixed periods ranging
from 6 months to 3 years.
How do NRE, NRO and NRSR accounts differ?
Balances held in NRE accounts can be repatriated abroad freely, whereas funds in
NRSR and NRO account cannot be normally remitted abroad but have to be used only
for local payments in rupees. Consequently, funds remitted from abroad or local
funds which can otherwise be remitted abroad to the accountholder can only be credited
to NRE accounts.
Can an NRI, and FIIs invest in mutual funds in India?
Yes. The following summary outlines the various provisions related to investments
by Non-Resident Indians ('NRIs'), Persons of Indian Origin ('PIOs') and Foreign
Institutional Investors ('FIIs') in the Schemes of the Mutual Fund and is based
on the relevant provisions of the Income-tax Act, 1961 ('the Act'), regulations
issued under the Foreign Exchange Management Act, 1999 and the Wealth-tax Act, 1957
(collectively called 'the relevant provisions').
The following information is provided for general information only. However, in
view of the individual nature of the implications, each investor is advised to consult
with his or her own tax advisors / authorised dealers with respect to the specific
tax and other implications arising out of his or her participation in the funds.
NRIs can invest in mutual funds on a Repatriable/Non-Repatriable basis as per the
provisions of Schedule 5 of the Foreign Exchange Management (Transfer or issue of
Security by a Person Resident Outside India) Regulations, 2000 ('the Regulations')
as explained below.
A Common Application Form duly completed together with cheques or bank drafts should
be remitted through Investor Service Centres. All cheques/demand drafts accompanying
the application form must be made in favour of the scheme names and crossed "A/c
payee" only and should be made payable at a city where the application is accepted
by any Investor Service Centres.
Repatriable Basis - NRIs, PIOs.
When NRIs and PIOs apply to purchase units on a repatriable basis, payments may
be made inward remittances, or by cheques drawn on the NRE/FCNR account of the investor
[Clause 3(2) of the Regulations] payable at the city where the application form
is accepted by any Investor Service Centres.
Non-Repatriable Basis - NRIs, PIOs.
When NRIs/PIOs apply for units on a non-repatriable basis, payments may be made
by inward remittances, or by cheques/demand drafts drawn on the NRE/FCNR/NRO/NRSR
account of the investor, payable at the city where the application form is accepted
by any Investor Service Centres.
FIIs may pay for their purchases with funds held in a Foreign Currency account or
Non-resident Rupee account maintained in a designated branch of an authorised dealer.
Payments may be made by cheques payable at a city where the application is accepted
by any Investor Service Centres..
Applications from FIIs should be accompanied by appropriate documentation supporting
the status of the investor and should be sent to the AMC/ISC , so as to reach them
not later than 7 days after the date of the subscription.
Similarly, in case of an application under a Power of Attorney or by an FII, the
original Power of Attorney or the relevant resolution/authority to make the application
(or a duly notarised certified true copy thereof), along with a certified copy of
the Memorandum and Articles of Association and/or bye laws and Certificate of Registration
should be submitted to the ISC within 7 days from the date of the application. The
officials should sign the application under their official designation.
The NRIs/PIOs/FIIs may also be required to furnish other documents needed to process
Does an NRI, FII require any approval from the RBI to invest in mutual funds?
No special approval is required. NRIs/PIOs/FIIs have been granted a general permission
by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations, 2000] for investing in /redeeming
units of the funds subject to conditions set out in the aforesaid regulations.
Can an NRI invest in foreign currency?
An NRI cannot make the investment in foreign currency. He needs to give a Rupee
cheque from his NRE, NRO, NRSR bank account in India. He may also send a Rupee cheque
from abroad payable in a bank in India. However, for an NRI to invest, it is mandatory
that he maintains a bank account in India.
What is the mode of payment for Repatriation and Non-Repatriation Basis?
Repatriable Basis. Payments for the purchase of the units may be made by Indian
Rupee drafts purchased abroad, or by cheques drawn on the NRE/FCNR Account of the
investor, payable at the city where the application form is accepted by any Investor
Payments for the purchase of the units may be made by Indian Rupee drafts purchased
abroad, or by cheques/demand drafts drawn on the NRE/FCNR/NRO/NRSR/NRNR account
of the investor, payable at the city where the application form is accepted by any
Investor Service Centres.
FIIs may pay for their subscription amounts by Indian Rupee drafts purchased abroad,
or from funds held in a Foreign Currency account or Non-resident Rupee account maintained
in a designated branch of an authorised dealer. The Indian Rupee drafts/cheques
should be made payable at a city where the application is accepted by any Investor
When will my NRI purchase take effect?
If an application is received before the 3 p.m., Indian Standard Time on any business
day, the allocation of units will be based on the NAV of that business day. All
applications received after the prescribed time will be treated as having been received
on the next business day and the units allotted accordingly.
How does an NRI redeem funds?
In the open-end schemes of mutual fund units can be purchased or redeemed at any
point in time. To redeem funds, submit the redemption request to the nearest Investor
Service Centre. Your form must contain the investor's folio number and the amount
/ units you would like to redeem. Redemption requests by telephone, telegram, fax
or email that lack valid signatures will not be accepted.
How will the redemption proceeds be paid?
Redemption proceeds will be paid by cheque. The cheque will be payable to the first
unitholder and will include the bank account number. Redemption proceeds/repurchase
price and/or dividend or income earned (if any) will be payable in Indian Rupees
How can the redemption proceeds be repatriated?
The investments shall carry the right of repatriation of capital invested and capital
appreciation so long as the investor continues to be a resident outside India.
In the case of an FII, the designated branch of the authorised dealer may allow
remittance of net sale/maturity proceeds (after payment of taxes) or credit the
amount to the Foreign Currency account or Non-Resident Rupee account of the FII,
maintained in accordance with the approval granted to it by the RBI.
In any other case, where the investment is made out of inward remittance or from
funds held in the NRE/FCNR account of the investor, the maturity proceeds/repurchase
price of units (after payment of taxes) may be credited to the NRE/FCNR/NRO/NRSR
account of the non-resident investor maintained with an authorised dealer in India
What about redemption proceeds where investments were made on a non-repatriable basis?
Where the purchase of units is made on a non-repatriable basis, the maturity proceeds/repurchase
price of units (after payment of taxes) will not qualify for repatriation and may
be credited to the NRO/NRSR account of the non-resident investor.
Where the investment is made out of funds held in a NRSR account, the maturity proceeds/
repurchase price of units (after payment of taxes) may be credited to the NRSR account
maintained by the investor with an authorised dealer in India.
Similarly, investments in units purchased in Rupees, where the investor was a resident
of India and subsequently becomes a non-resident, will not qualify for repatriation
of repurchase proceeds of units.
The entire income distribution on the investment will, however, qualify for full
repatriation. Investors are advised to contact their banks/tax consultants if they
desire remittance of the income distribution on units abroad.
Is the income/dividend on mutual fund units repatriable?
The investments shall carry the right of repatriation of capital invested and capital
appreciation so long as the investor continues to be a resident outside India. In
the case of an FII, the designated branch of the authorised dealer may allow remittance
of net sale/maturity proceeds (after payment of taxes) or credit the amount to the
Foreign Currency account or Non-resident Rupee account of the FII maintained in
accordance with the approval granted to it by the RBI. In any other case, where
the investment is made out of inward remittance or from funds held in NRE/FCNR account
of the investor, the maturity proceeds/repurchase price of units (after payment
of taxes) may be credited to NRE/FCNR/NRO/NRSR account of the non-resident investor
maintained with an authorised dealer in India.
What is the tax liability on redemptions?
Under Section 2(42A) of the Income Tax Act, units of the fund held as a capital
asset for a period of more than 12 months immediately preceding the date of transfer,
will be treated as a long-term capital asset for the computation of capital gains,
thus qualifying for the long-term capital gains tax rate. In all other cases, it
would be treated as a short-term capital asset and would be taxed at the short-term
capital gains tax rate.
What is the tax liability for income received from your mutual funds?
As per Section 10(35) of the Income Tax Act, 1961, income received from mutual fund
units specified under Section 10(23D) is exempt from income tax in India and the
mutual funds are subject to pay distribution tax in debt oriented schemes. Hence
all dividends are tax-free in the hands of non-resident investors and no TDS is
applicable on the same.
Is it mandatory to have a Permanent Account Number (PAN)?
It is not mandatory to have a PAN for an NRI even if the investment amount is greater
than Rs. 50,000. PAN would however, be required if the NRI is required to file a
return in India or claim a refund of any taxes paid.
How does one apply for a PAN?
An application is required to be made in Form 49A (Download)
What is the proof of the Tax Deduction at Source?
A TDS certificate is issued in the name of the investor mentioning the details of
the transaction and the tax deducted. The TDS certificate is commonly known as Form16
When will the TDS certificate be issued?
A TDS certificate (Form 16A) will be despatched to the investor at his or her registered
address along with the redemption warrant.
Can an NRI have a joint account in a mutual fund with a resident Indian?
Yes. An NRI investor can jointly own a fund account with a resident Indian or a
Is the indexation benefit available to NRIs?
Yes, if units are held for more than 12 months i.e. on long-term capital gains.
Are fund units liable to the wealth tax?
No. Units issued to overseas investors will not be treated as assets as defined
under section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to
Can dividend received from a mutual fund in an NRO account be repatriated?
Yes. Income generated from investments (dividend, in this case) done on a non-repatriable
basis qualify for full repatriation.
Can an NRI fax a request followed by the original documents?
No. Units cannot be redeemed or allotted on the basis of fax applications. A request
that lacks a valid signature cannot be processed due to legal restrictions.
Can a Power of Attorney (POA) invest on behalf of the NRI investor?
Yes. unlike banks where a POA holder cannot open an account on behalf of the NRI,
in a mutual fund the POA has the authority to invest on behalf of the investor and
sign documents for initial and additional purchases as well as redemptions.
While applying for purchase of units the POA holder needs to submit the original
POA or a copy duly notarised should be submitted. The Power of attorney should contain
the signature of both the first holder and the POA holder. Only when the POA is
registered does the POA holder have the right to transact on behalf of the NRI investor.
His signature will be verified for processing any transaction/request.
Is nomination by NRIs allowed in Mutual Funds?
Yes. It is allowed only for Individuals/HUFs.
Can a resident Indian have an NRI as nominee?
Yes. The same rules apply for nominees to resident Indian accounts. An NRI can be
a nominee to an account which is in the name of a resident Indian.
Investments by U.S Person
There are certain mutual funds which do not permit investments in their schemes
as these are entities who are also governed by the laws in US (for eg Franklin Templeton
Mutual Fund) and the Schemes have not been registered in the United States of America
under the Securities Act of 1933 which is a mandatory requirement for these fund
houses. Applicants for Units may be required to declare that they are not a U.S.
Person and are not applying for Units on behalf of any U.S. Person.
The term "U.S. Person" shall mean any person that is a United States Person within
the meaning of Regulations under the United States Securities Act of 1933, as the
definition of such term may be changed from time to time by legislation, rules,
regulations or judicial or administrative agency interpretations.
Funds presently not eligible for investments by US residents are:
Fidelity Mutual Fund
Franklin Templeton Mutual Fund
HSBC Mutual Fund
PNB Principal Mutual Fund