Mutual Fund

1. An Indian citizen or a foreign citizen of Indian origin who stays abroad for employment/carrying on business or vocation or under circumstances indicating an intention for an uncertain duration of stay abroad is a NON-RESIDENT INDIAN (NRI). (Those who stay abroad on business visit, medical treatment, study or such other purposes which do not indicate an intention to stay there for an indefinite period will not be considered as NRI's.)

2. Students who go abroad for studies with an intention to stay there for an uncertain period and who stayed abroad for more than 180 days in the preceding financial year will be treated as Non Resident Indians.

Can NRI's invest in Mutual Funds in India?

class="BlackTxt_Justify RPadd">Investments by NRI's in Mutual Funds can be made on a repatriable or on a non-repatriable basis, as preferred by the investor.

Certain restrictions do exist in some of the host countries of NRI's like U.S., Canada etc. on investment by NRI's in Indian Mutual Funds. These, NRI's will have to check themselves before investing or committing to invest in Indian Mutual Funds.

Repatriable Basis

To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions:

The mutual fund should comply with the terms and conditions stipulated
by SEBI.

The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE/FCNR
account of the non-resident investor.

The net amount representing the dividend / interest and maturity
proceeds of Units may be remitted through normal banking channels
or credited to NRE / FCNR account of the investor, as desired by him
subject to payment of applicable tax.

Non-Repatriable Basis

The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on non-repatriation basis, subject to the following conditions:

Funds for investment should be provided by debit to NRO account of the
NRI investor. Alternatively, funds may be invested by inward remittance
or by debit to NRE / FCNR Account.

The current income in the form of dividends is allowed to be repatriated.

No permission of Reserve Bank either by the Mutual Fund or the NRI investor is necessary.

Does an NRI need any approvals from the Reserve Bank of India to invest in mutual fund schemes?

No. As an NRI one does not need any specific approval from the RBI for investing or redeeming from Mutual Funds. Only OCB's and FII's require prior approvals before investing in Mutual Funds.

Can NRI individuals make investments in domestic public/private sector Mutual Funds or Money Market Mutual Funds floated by commercial banks and public/private sector financial institution on non/repatriation basis?

Yes.

What are the investment restrictions on NRI's for investments in Mutual funds?

There are no investment restrictions on NRI's for investing in mutual funds. RBI does not restrict investment in mutual funds either on repatriable or non-repatriable basis.

Can I gift Mutual Fund Units to my relatives in India?

Yes. Certain funds do permit gifting of units. One should refer to the offer document of the specific fund to know the details.

Can I repatriate my earnings on redemption?

If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment are eligible for repatriation subject to regulatory guidelines in force at the time of repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation.

Can I repatriate my initial investment, earnings (capital gains) from redemption and any dividend arising from it?

If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment is eligible for repatriation subject to regulatory guidelines in force at the time of the repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation.

Is there any ceiling on NRI investments in mutual fund schemes?

There are no ceilings on investments in mutual fund schemes by NRI's.

What is the procedure for redeeming mutual fund units?

NRI's can redeem their Units by signing on the tear-off portion of the account statement & sending it to any of the AMC or your personal MF investment advisor through post or by sending a letter requesting redemption with the signatures and the amount to be redeemed. The redemption request would be processed at the applicable NAV based price. The redemption proceeds will be sent directly to the bank branch where NRE/NRO account depending upon whether repatriable or non-repatriable account within three business days. The redemption proceeds will be net of tax deduction at source on the profits.

What is the tax liability on receipt of Income on Mutual Fund Units?

As per Section 10(33) of the Income Tax Act, 1961 (‘Act’) income received in respect of Units of a mutual fund 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.

What is the tax liability on Redemptions? What is the rate of Tax Deduction at Source for NRI's / PIO's? What is the tax - rate on capital gains for NRI's / PIO's?

Under Section 2(42A) of the Income Tax Act, Units of the Scheme held as a capital asset, for a period of more than twelve months immediately preceding the date of transfer, will be treated as a long term capital asset for the computation of capital gains – thus attracting long term capital gains tax rate.

In all other cases it would be treated as a short-term capital asset and would attract short-term capital gains tax rate. Hence depending on the period of investments, long term or short capital gains and tax thereon is applicable on redemption’s.

Though there is currently no long-term capital gain tax liability for redemptions from equity schemes, there is a liability at the time of redeeming from the debt schemes.

Tax Rates and TDS Rates to NRI’s / PIO’s / FII’s?

I. Income from Units of a mutual fund specified under section 10(23D) of the Income-tax Act, 1961 (the Act) is exempt in the hands of unit holders under section 10(35) of the Act. No income tax is deductible under section 194K and 196A of the Act on any income distribution by the Mutual Fund.

II. Capital Gains and TDS thereon:

		*Tax Rates under the Act**			*TDS Rate under the Act**
		Residents	NRI's / PIO's	FII's	Residents	NRI's / PIO's / other Non FII non-residents	FII's
Short Term Capital Gain	Units of a non equity oriented fund	Taxable at normal rates of tax applicable to the assessee		30% without indexation benefit (u/s 115AD)	NIL	30% for non residents non corporate, 40% for non resident corporate, (u/s 195)	NIL
Short Term Capital Gain	Units of an equity oriented fund	15% on redemption of Units where STT is payable on redemption (u/s 111A)					Nil
Long Term Capital Gain **	Units of a non equity oriented fund	10% without indexation, or 20% with indexation, whichever is lower (u/s 112)		10% with no indexation benefit (u/s 115AD)	NIL	20% for non residents (u/s 195)	NIL
Long Term Capital Gain **	Units of an equity oriented fund	Exempt in case of redemption of Units where STT is payable on redemption [u/s 10(38)]				Nil	Nil

*Plus surcharge as applicable: corporate, co-operative societies, firms and local authorities: 10%; Individuals/HUF's/BOI's/AOP's, with total income exceeding Rs.10,00,000 : 10%; Artificial juridical person: 10%.
** Capital Gains on redemption of Units held for a period of more than 12 months from the date of allotment.
•Long Term Capital Gains arising from redemption of unit of a non equity oriented fund are exempt from tax, if gains are invested in specified bonds within 6 months from the date of redemption, under Section 54EC of the Act or if gains are invested in eligible equity issues within 6 months from the date of redemption, under Section 54ED of the Act.
•In order for the unit holder to obtain the benefit of a lower rate under the DTAA, an eligibility certificate from unit holder’s Assessing Officer should be provided to the Fund.

Is the indexation benefit available to NRI's? Yes, in case Units are held for more than twelve months i.e. on long-term capital gains.

Can an NRI gift the Units of MF's to resident Indians? An NRI may gift the Units to any investor Indian or an NRI. Units gifted by any person would not be liable to any gift tax since the Units held under the schemes are also not subject to provisions on the Gift Tax act, 1958.

Are Units of MF's chargeable in Wealth Tax? No. Units issued to investors (including NRI's) etc. 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 wealth-tax.

Is Securities Transaction Tax applicable to NRI investors? Yes.

Is there any Tax liability on switching from one option to the other? Yes. On switching from the Growth option to the Dividend option, the investor is liable to TDS at the applicable tax rate.

Can NRI's invest their funds in Government securities or Units of Unit Trust of India(UTI)? Yes. NRI's are freely permitted to invest their funds in Government securities or Units of UTI through authorized dealers. Units can also be purchased directly from UTI.

Can NRI's make investments in National Savings Certificates issued by Post Offices in India? Yes. Investments in National Savings Certificates can be made by NRI's subject to the terms and conditions applicable to the sale/issue of such certificates. However, NRI's are not permitted to invest in bearer securities like Indira Vikas Patra/Kisan Vikas Patra

Can Government securities/Units be freely transferred or sold? Yes, provided the transfers/sales are arranged through an authorized dealer. Units can, however, be repurchased directly by UTI.

How can I invest in Indian equity markets? What is the procedure?
Portfolio Investment Scheme: Under this scheme, NRI's can acquire shares/ debentures of Indian companies or Units of domestic mutual funds through the stock exchange(s) in India through portfolio investment scheme.

NRI's can also invest in unlisted companies through portfolio investment scheme. The application is to be submitted to Reserve Bank of India through a designated branch of a bank in India in one of the prescribed forms.

What is a designated branch? Reserve Bank of India has authorized a few branches of each bank to conduct the business under Portfolio Investment Scheme on behalf of NRI's. These branches are the main branches of major commercial banks located close to the stock exchange(s). These branches are called designated branches. NRI's will have to go through any of these designated bank branches. Each NRI has to select one branch for this purpose for investment on repatriation/ non-repatriation basis. It is advisable to maintain a bank account with the designated branch for administrative convenience.

What is the validity period of Reserve Bank’s permission? Reserve Bank of India's approval for portfolio investment is valid for a period of five years from the date of issue. Making a request by means of a simple letter can renew this further.

Is there any ceiling on the investment under the Portfolio Investment Scheme? There is an overall ceiling of 10 percent of equity share capital of the company/ paid-up value of each series of convertible debentures for purchase by NRI's/ OCBs. There is no such limit or restriction in respect of portfolio investment in non-convertible debentures and mastershares of UTI. The overall ceiling can be raised to 30 percent if the company concerned passes a Board resolution and a special resolution in its general body meeting. Individually, NRI's/OCB's can make investment up to 1% of the paid-up equity share capital/each series of convertible debentures. However, there is no ceiling on investment in domestic Mutual Funds.

Is dividend/interest earned in respect of investment made under the 100% Scheme freely remittable to the NRI's abroad? Dividend/interest can be remitted freely except in the case of consumer goods industries where the outflow on account of dividend is required to be balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend, This requirement is enforced for a period of seven years from the commencement of commercial production.

Accounts to be opened and Documents to be submitted:

A. TOTAL ACCOUNTS TO BE OPENED. 1. BANK ACCOUNT WITH DESIGNATED BANK. 2. ACCOUNTS WITH BROKER. 3. DEMAT ACCOUNT WITH DEPOSITORY.

B.TOTAL DOCUMENTS REQUIRED. 1. PHOTOGRAPHS SIGNED ACROSS. 2. PASSPORT COPY OF CLIENTS WITH VALIDITY PAGE AND VISA PAGE. 3. PROOF OF RESIDENCE (DRIVERS LICENCE, ELECTRICITY BILLS, ETC.

C) Can I repatriate my funds? If yes, how? Investment on repatriation basis: NRI's can make portfolio investment in shares and debentures quoted in any stock exchange in India with full benefits of repatriation of capital invested and income earned on that capital. In the case of shares/ debentures/ bonds acquired by NRI's through stock exchanges under the Portfolio Investment Scheme, transfer can be done through stock exchanges provided the sale is arranged through the same designated branch through which they were purchased. In other cases, applications for necessary permission are required to be made to Reserve Bank of India on form TS4/ TS3.