How Can NRIs Invest in Mutual Funds in India?
- 10th September 2025
- 09:00:00 AM
- 9 min read
Are you an NRI and planning to enter the Indian securities market? Mutual funds can be an effective investment option for you that not only helps you achieve higher returns in India but also diversifies your investments.
As of July 2025, the Average Assets Under Management (AAUM) of the Indian Mutual Fund Industry stood at INR 77,00,420 crore. This shows that mutual funds can be a great investment choice among NRIs in India. This blog answers ‘Can NRIs invest in mutual funds? So, continue reading.
Can an NRI Invest in Indian Mutual Funds?
Yes, a non-resident Indian (NRI) can invest in mutual funds after complying with the Foreign Exchange Management Act (FEMA) regulations.
According to Regulation 2 of FEMA Notification No. 13 dated May 3, 2000, an NRI is an Indian citizen who resides outside the country. As per the Income-tax Act 1961, an Indian resident is a person who has been residing in India for a minimum of 120 days or more in a fiscal year or 365 days or more in the previous 4 financial years and a minimum of 60 days in that year.
In this sense, NRIs are those individuals who visit India for less than 120 days in a fiscal year, previously, which was 182 days. However, there are some considerations. The 120-day rule will only apply if the total Indian income of a person during a financial year exceeds INR 15 lakh 15 lakh.
If their stay does not exceed 181 days, as was previously the case, visiting NRIs will remain NRIs whose total taxable income in India during the fiscal year is up to INR 15 lakh.
Note that the definition of NRI in FEMA determines where they can invest, while the NRI definition in the Income Tax Act determines how their profits will be taxed.
Essential Requirements for KYC Completion for NRI Mutual Fund Investment
As an NRI, you must submit the following essential documents to complete KYC for investing in mutual funds:
- Recent passport-sized photographs
- Copy of a Valid Passport
- Proof of Date of Birth
- Residential Proof in a foreign country
Along with these documents, some AMCs may require additional documents from NRIs, like a duly signed NRI declaration form for mutual funds. Hence, NRIs must confirm the same with their selected AMCs.
How Can NRIs Invest in Mutual Funds?
FEMA regulations allow NRIs to invest in mutual funds, considering some factors. NRIs must follow the steps below to invest in mutual funds in India:
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Setting Up an Account
Mutual fund asset management companies (AMCs) in India do not accept investments in foreign currencies. In addition, FEMA also does not allow you to keep your money in a regular residential savings account if you have achieved an NRI status. This law makes it mandatory for NRI investors to use NRE and NRO accounts based on their choice:
NRE Account
You can use the Non-Resident External (NRE) account if you want to transfer your foreign earnings in India.
NRO Account
You can use the Non-Resident Ordinary (NRO) account if you have Indian rupees which cannot be repatriated easily to a foreign currency.
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Choose an Investment Method
There are typically 2 methods for NRIs to invest in mutual funds:
Self or Direct
Being an NRI, you can make direct investments in mutual fund schemes through regular banking channels with your NRE or NRO account and submit your Know Your Customer (KYC) documents. For verification, your bank may need an in-person verification, which you can execute by visiting the Indian Embassy in your country.
Via Power of Attorney
You can also invest in mutual funds through a Power of Attorney (PoA). Reputed AMCs in India allow these PoA holders to invest in funds on behalf of the NRIs. Both the PoA holder and NRI should sign the KYC papers to become eligible for mutual fund investments in India.
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KYC Completion
Before investing in mutual funds, NRIs have to complete the KYC process. They need to submit the self-attested copies of the aforementioned documents. Then some fund houses can also make an in-person verification.
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NRIs from the USA and Canada
However, some Indian mutual fund houses do not allow NRIs from the USA and Canada to invest in schemes due to complex compliance requirements under the Foreign Account Tax Compliance Act (FATCA).
Conversely, some fund houses have specific conditions which allow investors from the USA and Canada to invest in their schemes. Hence, NRIs from the USA or Canada must look for additional document requirements.
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Funds Redemption
Redemption of mutual funds for NRIs has a simple procedure. Each fund house follows different redemption procedures in India.
The respective AMCs will credit the corpus you receive after fund redemption to your NRE or NRO bank account after tax deductions. The fund houses can also write a cheque for the same.
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How to Open an NRI Demat Account?
You can also download the PL Capital Group – Prabhudas Lilladher application and open an NRI Demat account online. PL serves more than 1400 NRIs throughout the globe.
PL makes mutual fund investment for NRIs hassle-free by allowing them to open an NRI Demat account with just 4 steps:
- Download the account opening form and fill out the necessary details.
- Submit the documents needed for identity proof.
- Link your NRO or NRE bank account with the account.
- Complete your digital in-person verification.
NRI Taxation for Mutual Funds in India
Being an NRI, you may fear the fact that NRIs have to pay 2x tax for investing in Indian mutual funds. However, it will not happen if India has signed the Double Taxation Avoidance Treaty (DTAA) with the country in which you are residing.
For instance, India has a DTAA treaty agreement with the US. Hence, an NRI may claim tax relief in the US if he or she has paid taxes in India. The NRI has to pay taxes for his or her gains from equity-oriented mutual funds based on the holding period.
The table below categorises the holding period for different types of mutual funds:
| Type of Mutual Fund | Short-term holding | Long-term holding |
| Equity mutual funds | Less than 12 months | 12 months or more |
| Debt mutual funds | Less than 36 months | 36 months or more |
| Balanced mutual funds | Less than 12 months | 12 months or more |
Now that you have a clear idea of the short- and long-term holding, the table below highlights the tax payable on capital gains from mutual funds:
| Type of Mutual Fund | Short-term capital gains (STCG) tax | Long-term capital gains (LTCG) tax |
| Equity mutual funds | 20% | 12.5% |
| Debt mutual funds | According to the tax slab | According to the tax slab |
| Balanced mutual funds | 20% | 12.5% |
Advantages of Investing in Mutual Funds in India for NRIs
Being a resident of any country in the world, you can enjoy the benefits of investing in the developing market in India. Below are the advantages NRIs can get by investing in mutual funds in India:
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Flexibility
Investing in Indian mutual funds allows NRIs to manage their investment hassle-free. You can also invest in mutual funds online using your NRI account. From investing to withdrawing funds, you can do everything securely without being present in India.
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Diverse Options
The different categories of mutual funds in India cater to the diverse needs of investors. You can invest in various types of mutual funds, such as equity funds, debt funds, or hybrid funds, according to your needs.
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Portfolio Diversification
Since mutual funds distribute funds into a variety of financial instruments, NRIs can diversify their portfolio without being present in India.
Final Thought
NRIs all over the world can invest in Indian mutual funds without any hassle. Understanding how can NRIs invest in mutual funds helps you analyse the key considerations NRIs can take for mutual fund investments.
Based on their personal preferences to transfer earnings, NRIs can choose between an NRE and an NRO account for mutual fund redemption.
Opening an NRI Demat account with PL allows you to participate in the Indian securities market and invest in different securities like equities, derivatives, mutual funds, commodities, and more.
Frequently Asked Questions
1. Can NRIs directly invest in mutual funds?
Yes, NRIs can directly invest in Indian mutual funds using their respective NRE or NRO bank accounts. They also need to complete their KYC process.
2. Are there any lock-in periods or restrictions for NRIs investing in mutual funds in India?
Generally, there is no lock-in period or restrictions for NRIs investing in Indian mutual funds. However, some specific mutual fund categories, like ELSS funds, have a 3-year lock-in period.
3. Which is the best mutual fund for NRIs?
There is no best mutual fund for NRIs, since it totally depends on their respective personal preferences and investment goals.
4. What to choose between an NRO or NRE account for NRIs while investing in mutual funds?
Choosing between an NRO and an NRE account depends on the NRI. You can use an NRE account if you want to transfer your foreign earnings to India. Conversely, if you have Indian rupees which you do not want to repatriate to a foreign currency, then an NRO account is best for you.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
