By Debanjan Guha Thakurta
The author is an analyst with Fundsupermart.com
Mumbai, India, May 31, 2012 (Washington Bangla Radio) Non-resident Indians have very little knowledge about investing into the Indian mutual funds space. They often have to trade off their savings with lower rates of interest. The interest rates on money market instruments in the U.S. are somewhere between 0.05% to 0.10% annually, compared to our bank account savings rate of 4-6%. Further, when we compare this to the returns from the mutual fund industry, their bank rates seem to a miniscule.In spite of the global weakness in the equity market space, Indian economy’s prospect still looks bright and promising in the years to come and its long-term growth story remains firm as ever.
Before we proceed to the next step, let us know in a nutshell who qualifies to be a NRI?
Who is an NRI?
According to the Indian law, any person who has been not in India for more than 182 days for the financial year and more than 365 days in the preceding four financial years due to employment or business purposes is called as NRI. A person deployed outside India for more than 6 months will also be considered as Non Resident Indian (NRI).
Reasons to Invest in Mutual funds in India
India is one of the emerging markets of the world. With its huge population and resources, Indian market offers business opportunity and a place for every big corporations across the world. So, investments made in mutual funds, which in turn invests into such companies will eventually tend to grow, rewarding the investors with solid returns.
Secondly, if one looks at the returns given by the mutual funds over the past year then the debt and liquid funds have notably generated more than 9%, whereas the equity mutual funds have delivered somewhere between 12-16%. Overall, some of the equity mutual funds have delivered annualized return of more than 35% since inception in the long term period.
Indian mutual funds are steady and stable and offer easy liquidity facility. If an investor wants to diversify his/her portfolio, then there are various instruments which he can look to invest into and information about them is easily available online.
NRIs from across the globe can invest into Indian mutual funds. However, NRIs from the US and Canada cannot invest into the certain mutual fund houses which includes the names such as HSBC.
Local currency is needed while investing in the mutual funds, so the NRI does have to open any of the three accounts before investing into the funds. The three accounts are Non-Resident external rupee account (NRE), non-resident ordinary rupee account (NRO) or foreign currency non-resident account (FCNR).
Money which can be sent back to the country of NRIs residence is done through the help of NRE account. It is basically a rupee account which is freely repatriable and can be opened with international and local funds. Similarly, an NRO account is a non-repatriable rupee account, which can be opened through funds generated in India or funds remitted from abroad. A Foreign Currency Non-Resident account (FCNR) is an account where through foreign currency funds are kept in custody.
If an NRI investor wants to invest through cheques or drafts, then he/she must attach a foreign inward remittance certificate (FIRC), issued by the bank, stating the source of funds along with the application form.
Just like any other resident investors, a PAN number and address proof is required to be submitted by the NRIs before investing into mutual funds.
The NRI investors can invest through online mutual fund distribution house like ours, which not only simplifies the whole investment process but also helps the investors with specialized research reports, consolidated holding statements along with specialised tailor made portfolio recommendations.
Investor can track and monitor their individual portfolios and can easily take investments at their end. But many times they face the difficulty in tracking and monitoring the investments because of different time zones.
To make the things more easy and efficient, mutual funds can be operated and invested through power of attorney (POA) holders also. The NRI investor can appoint an attorney holder who can transact on behalf of him.
The POA holder will have to submit the original or attested copies of the POA document and submit it to the fund house or respective advisors whenever they want to invest, purchase or redeem units on behalf of the NRI investors.
Another way that the NRI investor can handle his investments is by appointing Indian nominees who can take the calls on behalf of the investors.
Redeeming the units
The unit holder can redeem the units and a cheque will be issued in his name which can be deposited into the bank account. Separately, now-a-days few banks allow the redemption proceeds to get directly credited into the unit holder’s account. However, all the proceed will be payable in rupees and any loss arising due to fluctuating foreign exchange rate will have to be borne by the investor.
Taxation rules are the same both for resident investors and non-resident investor. The only difference is that in case of NRI investors, the investor’s Tax will be deducted at the source for the short term capital gains. However, they don’t have to pay any tax for long term capital gains and neither for dividends, if any declared by the fund.
Investing into mutual funds is not at all that hard. So, invest your money into the mutual funds and reap double benefits of good returns and liquidity.
This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients. Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.