Simple Steps To Invest In Mutual Funds As An NRI

Everybody wants to put money in mutual funds and why not, mutual funds seem to be a secure way if one wants to invest money in the stock market or other securities but have no or minimal knowledge in that area. Mutual fund has become a popular investment option everywhere and more and more money pouring every month by salaried and business person.

Simple steps to invest in Mutual Funds as an NRI

Mutual funds have given very good returns in the long run if invested right off course. It is the reason why even an NRIs are also interested in investing. Buying and selling mutual funds is easy but is it a straight forward process to buy or sell mutual funds as an NRI? Well, stay with me for a while, I will take you step by step in a very simple language.

But, before we start, it is important to know the basics of mutual fund therefore I will try covering key points one must know related to the mutual fund.

What Is A Mutual Fund?

Mutual Fund is a company or financial institution which pools the money from many investors and invest in share market, national bonds, or short term debt. In this way, investors don’t invest directly in stocks, bonds, or short term debt, instead they buy shares in a mutual fund. Mutual fund’s holding in nothing but the combined holding in various places.

Mutual Fund houses have highly talented and well-qualified people who take investment decisions on behalf of you and generate maximum profit from their investment. These people called the fund managers and each mutual fund will have one.

This keeps you tension free as qualified people are working to manage your money invested in mutual funds. But, one must choose correct mutual funds with a fund manager with an excellent track record to avoid losses in your investment.

Before, we jump to the steps, you must know;

What Is NAV or Net Asset Value?

As the name suggests, a NAV or Net Asset Value is the net worth of the mutual fund. NAV is calculated by subtracting company’s (in this case Mutual fund’s) liability from its assets. NAV of a mutual fund is calculated at the end of each trading day based on the closing price of the portfolio’s security.

In a nutshell, NAV can be considered as a share value of a fund.

When you invest in mutual funds, you get a mutual fund shares. E.g. If a mutual fund (A) has NAV value 20 at the end of a trading day and you decided to invest 10,000 INR in that fund then, you will get 10000/20 i.e. 500 shares. It works in the same way when you decide to sell i.e. you sell at the price of NAV and the amount difference will be your profit or loss.

Now, let’s go the steps for NRIs.

Steps To Invest In Mutual Fund As An NRI

1. Open an NRE or NRO or FCNR account

An NRI must open at least the repatriable or non-repatriable account (i.e. Non-Resident External, Non-Resident Ordinary, or Foreign Country Non-Repatriable account) to invest in a mutual fund. Read Also: Understanding NRE, NRO, and FCNR

These accounts can be opened with any of the nationalize and RBI approved banks. I have listed the benefits of these accounts here and which account type to choose for investment for maximum benefits.

2. Request The Bank For Mutual Fund Account

You need to reach out to the bank in which you opened an NRE, NRO or FCNR account and request for the mutual fund account. You need to confirm the account you will be using to invest in mutual funds i.e. (NRE/NRO/FCNR).

The Bank will complete the KYC process and verify your details. They will ask for the passport, abroad residence address proof, VISA copy, bank statement, and latest passport size photograph. Usually, when you open an NRE or NRO or FCNR account abroad with any of the bank, you will be assigned with a polite and helpful relationship manager. He/She will be trying their best to do the needful for all of your requests. This is one of the perks of being NRI and banking with good banks.

Mutual Fund companies allow the Power of Attorney holders to invest on your behalf and make decisions on your investments. Therefore, you have the option to let someone else invest on your behalf. However, in this case. signatures of both the NRI investor and Power of Attorney should be taken on the KYC documents to invest.

Taxes Applicable On The NRI Mutual Fund Investors

Short term and long term capital gain taxes will apply to NRIs as well. It is very important to know all the taxes in advance before buying or selling mutual funds.

  • On Equity Mutual Funds: Profits from the equity mutual attracts Short Term capital gain tax at the rate of 15% and the Long-Term capital gains, exceeding INR 1 Lakh a year, are taxable at the rate of 10%.
  • Debt Fund: Short Term capital gain are taxable at the rate of 30% however, if you are holding the best for more than 3 years then your gains will be taxable at the rate of 20%.

You must inquire about all the charges applicable on buying and selling of mutual funds with your relationship officer of the bank. This will help you to make an informed decision in the future.

And, at the end;

Why To Invest In Mutual Fund As An NRI?

There are many other investment options available for NRIs if they wish to invest in India however, one should choose the safe and which can promise good returns in the long run. India is a developing country and doing well in the economical growth, therefore there is no reason for you to be left out of investing in one of the fastest-growing economies. Following is the graph highlighting the potential of a mutual fund (if systematically invested in a correct fund).

mutual fund return graph

Of course, you can invest directly in the Indian Stock market as an NRI but it is risky unless you know about it and have time to track the market on a timely basis. On the other hand, mutual fund houses got the right team and they are experts in identifying the opportunity in the market. Therefore, it makes the mutual fund as an ultimate choice for investing indirectly and safely in the stock market.

Best Way To Invest In Mutual Fund

There are two ways i.e. Either you can invest a lump sum amount or invest in SIP (Systematic Investment Plans). Unless you know the market, you should avoid the lump sum investment and choose SIP instead.

SIP allows you to buy quantities at all levels and keeps you profitable in a long run and on the other hand, if you invest lump sum money at the wrong time then you may see negative returns or less returns overall. I consider SIP over lump sum because I like paying safe and don’t dream huge returns in a short time. Never the less, you have the flexibility of investment in mutual funds.

Read Also.

But remember, mutual fund performance is fully dependent on the market and your return from it is subject to market risk. Sometimes, you may find your investment giving you negative returns in the short term but don’t worry much when you have invested in best performing mutual fund. One last suggestion, do not check your mutual fund’s NAV price daily, maintain a reasonable schedule i.e. check on a monthly or quarterly basis. This will help you take wise action on a timely basis but stay long with mutual funds for good returns.

I hope you found this article useful and it helped in your financial planning. Do let me know if you have any queries related to this topic in the comment section.

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