NRI Mutual Funds in India: Process, Tax Rules, and Best Investment Options for 2026

India’s equity markets continue to expand, encouraging many Non-Resident Indians to consider mutual funds for long-term growth and portfolio diversification. Many professionals move abroad for career opportunities and lifestyle advantages, yet maintain financial roots in India to support dependents or manage assets back home. Investing in Indian mutual funds allows investors to participate in the country’s economic growth while complying with FEMA regulations.

Despite this intent, regulatory complexity often creates hesitation. Tax deducted at source on redemption, mandatory FATCA declarations, country-specific restrictions, and the choice between NRE and NRO accounts frequently confuse. This read will help NRIs to invest systematically, remain compliant with Indian and global tax laws, and avoid common regulatory pitfalls.

Can NRIs invest in Mutual Funds?

Yes, NRIs can invest in mutual funds. Investments must be made in Indian Rupees through NRE or NRO accounts, with KYC and FATCA/CRS compliance completed. FEMA allows these as permissible capital account transactions, while SEBI ensures transparency, and RBI monitors repatriation limits, including the $1 million annual cap for NRO accounts.

Who Qualifies as an NRI / OCI?

• NRI: An individual residing outside India for at least 182 days in a financial year, under FEMA rules, for employment, business, or other indefinite stay purposes.
  
• OCI: Individuals of Indian origin holding foreign citizenship; for investment purposes, they are treated on par with NRIs.

FEMA Permission for Mutual Fund Investments

• Mutual fund investments are allowed under FEMA without prior RBI approval for each transaction.

SEBI & RBI Stance

• SEBI: Ensures AMCs verify ultimate beneficial ownership and maintain transparency.
  
• RBI: Monitors foreign fund flows and repatriation rules, particularly the USD 1 million annual limit on NRO accounts.
  

Note: Some AMCs restrict access to investors in the USA and Canada due to complex SEC reporting requirements. Always check fund house policies before starting SIPs or lump sum investments.

Eligibility Criteria for NRI Mutual Fund Investment 

Indian regulations allow Non-Resident Indians to invest in mutual funds, subject to verification of tax status, KYC authentication, compliance with global disclosure requirements, and use of approved banking channels. The eligibility framework aligns with guidelines issued by the Securities and Exchange Board of India, the Reserve Bank of India, and the Income Tax Department.

1. Non-Resident Status Under Indian Tax Law

The Income Tax Act, 1961, determines residential status based on physical presence in India during a financial year. An individual qualifies as a Non-Resident if they do not meet the prescribed stay conditions of 182 days, or 60 days plus 365 days in the preceding four financial years, subject to notified thresholds.

Residential classification governs taxation, disclosure obligations, and repatriation rules. Investors must provide accurate status information during onboarding with the Asset Management Company (AMC).

2. Valid PAN Registration

A Permanent Account Number (PAN) issued by the Income Tax Department remains mandatory for all mutual fund transactions. Fund houses do not process purchases, redemptions, or systematic investment plans without PAN validation.

PAN links all financial transactions to the investor’s tax profile and ensures reporting compliance.

3. SEBI-Compliant KYC Completion

SEBI regulations require KYC (Know Your Customer) verification before investment. Investors must complete KYC through a SEBI-registered intermediary or KYC Registration Agency.

Standard documentation includes:

• Self-attested passport copy
• Valid visa or overseas address proof
• PAN copy
• Recent photograph
  

KYC status must reflect Registered before any transaction execution.

4. (FATCA)Foreign Account Tax Compliance Act. & CRS Self-Declaration

NRIs must submit FATCA and CRS declarations to confirm global tax residency status. FATCA primarily applies to U.S. taxpayers under U.S. reporting law, while CRS operates under the OECD framework for the automatic exchange of financial account information.

Mutual fund houses collect self-certification forms during onboarding. Non-submission may result in transaction rejection or suspension.

5. NRE or NRO Bank Account

The Reserve Bank of India permits NRI mutual fund investments only through designated non-resident accounts:

• NRE (Non-Resident External) Account: Used for foreign earnings. Principal and capital gains remain fully repatriable.
  
• NRO (Non-Resident Ordinary) Account: Used for India-sourced income. Repatriation of principal remains subject to prescribed limits and documentation requirements.
  

Fund houses credit redemption proceeds only to the registered NRE or NRO account linked at the time of investment.

Eligibility for NRI mutual fund investment depends on verified non-resident tax status, mandatory PAN and KYC compliance, FATCA/CRS disclosure, and use of RBI-approved banking channels. Accurate documentation provides regulatory compliance, smooth transactions and fund repatriation.

Countries Allowed & Restricted for NRI Mutual Fund Investment

Not all NRIs have the same access to Indian mutual funds. While most countries are allowed under FEMA and SEBI regulations, investors from certain jurisdictions, particularly the USA and Canada, face additional compliance requirements. Understanding these restrictions is crucial before initiating investments.

NRIs from USA & Canada: Special Rules

NRIs residing in the USA or Canada must comply with stricter reporting and tax rules due to FATCA obligations and SEC regulations. Many AMCs restrict onboarding investors from these countries to avoid complex disclosure and reporting burdens.

NRIs from the Middle East, UK, Singapore, and Australia

NRIs in these countries generally face fewer restrictions. Standard KYC, FATCA/CRS declarations, and NRE/NRO account compliance are sufficient for investment. These jurisdictions are widely accepted by most AMCs, making onboarding smoother.

Why Some AMCs Restrict US/Canada Investors?

• Compliance with FATCA and US SEC regulations adds administrative overhead.
  
• AMC risk of penalties or legal reporting obligations if disclosures are missed.
  
• Difficulty managing repatriation and tax reporting for US/Canada residents.

Country/Region	Allowed / Restricted	Key points
USA	Restricted	Many AMCs do not onboard; FATCA/SEC reporting is required
Canada	Restricted	Same as the USA; some AMCs allow with additional documentation
Middle East (UAE, KSA, etc.)	Allowed	Standard KYC and NRE/NRO account required
UK	Allowed	Standard compliance applies
Singapore	Allowed	Standard compliance applies
Australia	Allowed	Standard compliance applies
Other countries	Allowed	Standard NRI KYC, FATCA/CRS, and account compliance

NRE vs NRO Account for Mutual Fund Investment

The choice of account for NRIs planning to invest in Indian mutual funds impact repatriation, taxation, and overall investment efficiency. NRE (Non-Resident External) accounts are best for funds earned abroad, while NRO (Non-Resident Ordinary) accounts are designed for income generated in India. Understanding the differences helps NRIs make informed decisions aligned with their investment goals.

Parameters	NRE Account	NRO Account
Purpose	To deposit overseas earnings in India	To deposit income earned in India (rent, dividends, pension, etc.)
Denomination	Indian Rupee (foreign currency converted on deposit and withdrawal)	Indian Rupee; deposits can also be in foreign currency
Tax	Principal and interest are fully tax-exempt for NRIs	Interest is subject to TDS; balances are taxed as per the income tax slabs
Joint Account	Can only be opened with another NRI	Can be opened with a resident Indian (close relative) or NRI
Repatriability	Fully and freely repatriable	Repatriable up to $1 million per financial year; subject to taxes
Deposit & Withdrawal	Can deposit in foreign currency and withdraw in INR	Deposit in INR or foreign currency; withdrawals only in INR

Investing via NRE vs NRO Account

NRIs must use specific bank accounts to invest in Indian mutual funds. The choice of account determines repatriation flexibility, taxation, and overall investment efficiency. The two primary options are:

• Non-Resident External (NRE) Account: Designed for income earned outside India. Funds in this account are fully repatriable, making it ideal for globally mobile investors.
  
• Non-Resident Ordinary (NRO) Account: Designed for income earned within India, such as rent, dividends, or pension. Repatriation is limited, subject to RBI regulations.
  

Feature	Investing via NRE Account	Investing via NRO Account
Repatriation	Full: Both principal and gains can be transferred abroad without restriction	Limited: Up to $1 million per financial year or more on RBI approval.
Tax Impact	Interest and capital gains are tax-free for NRIs for most mutual funds (except certain debt funds)	Interest is subject to TDS; capital gains follow Indian tax rules
Best Use Case	Ideal for NRIs investing foreign-earned income in Indian mutual funds with maximum flexibility and minimal tax impact	Suitable for NRIs managing Indian-sourced income who want to invest domestically while complying with repatriation limits

Key Decision Factors: NRE vs NRO accounts

NRIs must choose the right account based on the source of funds, tax implications, and repatriation needs. This comparison highlights key differences between NRE and NRO accounts for informed financial decisions.

Key Factor	NRE Account	NRO Account
Repatriation	Full transferability abroad	Limited repatriation; subject to RBI guidelines
Tax Impact	Interest income is tax-free in India	Interest and certain capital gains are subject to TDS and Indian taxes
Tax Efficiency	High for foreign earnings	Lower; taxed under Indian law
Source of Funds	Foreign earnings only	India-sourced income (rent, dividends, business income)
Joint Account	Only NRIs can be joint holders	Resident Indian relatives can be joint holders

Step-by-Step Process to Invest in Mutual Funds as an NRI

1. Open NRE/NRO Account

NRIs cannot use resident savings accounts. Open a rupee-denominated NRI account:

NRE (Non-Resident External): Best for foreign earnings. Principal and gains are fully repatriable.

NRO (Non-Resident Ordinary): Best for India-sourced income (rent, dividends). Repatriation limited to $1 million per financial year.

Action: Ensure your bank offers NACH or e-mandate for seamless SIP auto-debits.

2. Complete KYC + FATCA

• Update PAN: Change PAN status to "NRI"; no new PAN required.

• Documents Required: Passport (photo and address pages), PAN card, overseas address proof (utility bill or bank statement within 3 months).

• Verification: Complete Video KYC (V-KYC) for remote validation.

FATCA/CRS Declaration: Submit country of tax residence and foreign Tax Identification Number (SSN, SIN) digitally.

3. Choose Investment Route

• Select the most convenient method:
• Directly through AMC for lower fees.
• Online platforms for fast digital processing.
• Through banks linked to your NRE/NRO account.
• Via Power of Attorney, if you authorise a representative in India.

Tip: Verify AMC eligibility based on your country of residence.

4. Select Mutual Fund Schemes

• Assess risk profile: equity, debt, or hybrid.
• Evaluate expected returns and historical performance.
• Consider investment horizon and liquidity needs.
• Plan Type: Prefer Direct Plans over Regular Plans to save 0.5%–1.5% in annual fees.
• Folio Tagging: Mark as Repatriable (NRE) or Non-Repatriable (NRO).

Nomination: Add a nominee to prevent legal complications for heirs.

5. Make an Investment & Track

• SIP: Register a bank mandate; first instalment may require manual transfer, subsequent ones auto-debit.

• Lump Sum: Transfer via net banking from NRE/NRO accounts; direct foreign currency accounts are not accepted.

• Tracking: Monitor portfolio performance regularly and adjust allocations as needed.

Ways NRIs Can Invest in Mutual Funds in India?

NRIs can invest in Indian mutual funds through multiple regulated channels. The route you choose affects documentation, compliance, and operational ease.

Directly Through AMC: 

Asset Management Companies (AMCs) allow NRIs to invest directly through their official websites or offline branches. This route reduces intermediary costs and gives direct access to scheme information, portfolio disclosures, and transaction history. Investors must complete KYC and FATCA compliance before investing.

Through Online Platforms:

 Registered online investment platforms simplify onboarding, documentation, and portfolio tracking. These platforms aggregate multiple AMCs into a single dashboard, making comparison and monitoring easier. Ensure the platform supports NRI accounts and complies with FATCA and RBI regulations.

Through Banks:

 Most Indian banks offer mutual fund distribution services to NRE and NRO account holders. Banks assist with documentation, KYC updates, and transaction processing. This route suits NRIs who prefer consolidated banking and investment management.

Through Power of Attorney (PoA):

 NRIs who cannot manage transactions in person can appoint a resident Indian to act on their behalf under a Power of Attorney. The PoA holder can execute investments, redemptions, and SIPs on behalf of the NRI, subject to regulatory guidelines.

Taxation on Mutual Fund Investment for NRIs

Taxation remains the most misunderstood aspect of NRI mutual fund investment. Indian tax law applies based on fund type, holding period, and residential status. Fund houses deduct TDS at source, and capital gains rules differ between equity and debt schemes. This section explains how taxation works, what rates apply, and how NRIs can use DTAA benefits to avoid double taxation.

Tax on Equity Mutual Funds

Equity mutual funds invest at least 65 per cent in Indian equities. Tax treatment depends on the holding period. Learn how tax applies to equity and debt schemes, and how to plan your tax liabilities with the help of our NRI Capital Gain Tax guide.

• Short Term Capital Gains (STCG): Gains on units held for up to 12 months attract 15 per cent tax.
  
• Long Term Capital Gains (LTCG): Gains on units held for more than 12 months attract 10 per cent tax on gains exceeding ₹1 lakh in a financial year.
  

Dividend income, if opted for, is subject to TDS before payout.

Tax on Debt Mutual Funds

Debt mutual funds invest primarily in fixed-income instruments. Recent amendments changed taxation rules:

• Capital gains on debt funds now attract tax as per the NRI’s applicable income tax slab, irrespective of holding period for most new investments.
  
• Indexation benefits do not apply to debt fund investments made after the revised taxation rules took effect.

Debt fund taxation reduces post-tax returns compared to equity funds for many NRIs.

Capital Gains Tax: Short Term vs Long Term

Holding period classification:

Fund Type	Short Term	Long Term
Equity Funds	Up to 12 months	More than 12 months
Debt Funds	As per revised rules	Slab-based taxation for most new investments

Short-term gains generally attract a higher tax rate than long-term gains in equity funds. Long-term holding improves tax efficiency in equity-oriented schemes.

TDS Applicable on Redemption

Asset Management Companies deduct Tax Deducted at Source at the time of redemption.

• Equity STCG: 15 per cent TDS
  
• Equity LTCG: 10 per cent TDS on gains above ₹1 lakh
  
• Debt Funds: TDS as per applicable slab rates
  

TDS deduction occurs regardless of total income. NRIs may claim a refund while filing Indian income tax returns if excess tax is deducted.

DTAA Benefit for NRIs

India has Double Taxation Avoidance Agreements with several countries. DTAA allows NRIs to avoid paying tax twice on the same income.

NRIs can:

• Claim lower tax rates if DTAA provides relief
  
• Claim foreign tax credit in the country of residence.
  
• Submit a Tax Residency Certificate to avail treaty benefits.
  

DTAA applicability depends on the country of residence and treaty terms. Proper documentation ensures optimal tax efficiency.

SIP vs Lump Sum Investment for NRIs

NRIs can invest in Indian mutual funds either through Systematic Investment Plans (SIPs) or lump sum investments. The choice depends on income source, market outlook, risk tolerance, currency exposure, and long-term financial goals. SIPs allow gradual investing, averaging out market and currency fluctuations, while a lump-sum investment provides immediate exposure to market movements.

SIP rules for NRIs

NRIs can invest in mutual funds only through NRE or NRO accounts; resident savings accounts are not permitted under FEMA and the Income Tax Act once NRI status is attained.

Key requirements for SIP registration:

1. KYC Compliance – Mandatory for all mutual fund investments.

2. FATCA & CRS Declarations – Required to comply with global tax reporting.

3. Mandate Registration – SIPs require an auto-debit facility through NACH, e-mandate, or One-Time Mandate (OTM) linked to the NRE/NRO account. Lump sum investments do not require mandates.

4. Taxation:

•  Capital gains are taxed the same as for resident investors, based on equity or debt classification.

• TDS is applicable for NRIs at the time of redemption.

Strategic Insight for NRIs:

• SIPs reduce currency conversion timing risk by spreading remittances over multiple months.

• They also smooth market volatility, helping disciplined long-term wealth creation.

SIP from overseas account

NRIs cannot invest directly from foreign currency accounts. As per FEMA regulations, all investments must be routed through an INR-denominated NRE or NRO account.

Investment process:

• Transfer foreign currency to India.

• Credit the funds into an NRE or NRO account.

• The bank converts the currency into INR.

• SIP auto-debit or lump sum investment is processed from the INR account.

Special Note: Some AMCs restrict investments for NRIs in the US and Canada due to FATCA compliance. NRIs should confirm AMC eligibility before investing.

SIP via NRE vs NRO

The choice of account affects repatriation and operational convenience, not taxation:

NRE Account:

• Fully repatriable principal and capital gains

• Interest earned is tax-free in India (while NRI status continues)

• Best for funds originating from abroad

NRO Account:

• Suitable for India-sourced income (rent, dividends, pensions)

• Interest earned is taxable in India

• Repatriation allowed up to USD 1 million per financial year, with documentation

• Capital gains tax on mutual funds remains the same whether invested via NRE or NRO accounts.

Which is better for long-term NRIs?

SIP is best when:

• Income is earned regularly overseas

• Investors want rupee cost averaging and discipline

• Currency and market timing risks need to be reduced

• Cash flow allows periodic investing

Lump Sum is  best when:

• Funds arise from bonuses, inheritance, or asset sales

• The investor has a high risk tolerance and a long investment horizon

• There is confidence in market entry timing or INR stability

Key Strategic Considerations for NRIs:

• SIP reduces market volatility risk and exchange rate timing risk

• Lump sum increases immediate market exposure and currency timing exposure

Long-term NRIs earning primarily abroad often prefer NRE accounts for flexibility and repatriation, while those with India-based income may use NRO accounts for convenience

However, Investment horizon, source of funds, and repatriation needs should guide the final decision

Best Mutual Fund Categories for NRIs

Choose a category based on your time horizon, tax exposure, risk tolerance, and regulatory structure. The table below highlights the key differences relevant to NRI investors.

These mutual fund categories offer structured options for NRIs, each designed to serve a specific financial objective. The comparison below reflects statutory definitions and current tax treatment under Indian regulations.

Parameter	Equity Funds	Debt Funds	Hybrid Funds	ELSS Funds
Regulatory Classification	≥ 65% equity exposure	Primarily fixed-income instruments	A combination of equity and debt	≥ 80% equity exposure
Investment Objective	Capital appreciation	Income stability	Balanced growth	Tax saving + growth
Ideal Holding Period	5+ years	1–3 years (goal-based)	3–5 years	Mandatory 3-year lock-in
Risk Profile	High	Low to Moderate	Moderate	High
Return Nature	Market-linked	Accrual + interest-driven	Partly market-linked	Market-linked
Capital Gains Taxation	15% STCG (<1 year); 10% LTCG (>1 year above ₹1 lakh)	Taxed as per applicable income slab (for most recent investments)	Based on equity allocation	Same as equity funds
Section 80C Benefit	Not applicable	Not applicable	Not applicable	Eligible (subject to Indian taxable income)
Suitable For NRIs Who	Seek long-term wealth creation	Prefer lower volatility	Want automatic asset allocation	Have taxable income in India

Repatriation of Mutual Fund Returns by NRIs

NRIs can transfer mutual fund redemption proceeds, dividends, and capital gains abroad, depending on the bank account used for the investment. The framework follows FEMA regulations issued by the Reserve Bank of India (RBI).

Read to master about NRI Repatriation.

Repatriation from NRE Investments

Eligibility

• Investment must originate from an NRE account
  
• There is no upper monetary limit.
  

Amount Eligible = Full principal amount+capital gains+Dividend proceeds

Transfer Flexibility : You can freely transfer funds abroad without RBI approval. 

Repatriation from NRO Investments

Eligibility : Investment funded through an NRO account

Transfer Limit : Up to USD 1 million per financial year

Amount Covered Under Limit = Principal amount+ Capital Gains+Other eligible balance

Terms & Conditions

• Taxes must be paid before remittance.
  
• Bank compliance verification required
  

Documents Required for NRO Repatriation

Mandatory Forms

Form 15CA (online tax declaration)
Form 15CB (CA certificate, where applicable)

Supporting Documents

• PAN copy, Proof of source of funds, and bank remittance request form
  

Note: Banks may request additional declarations based on internal compliance checks.

Common Mistakes NRIs Make While Investing in Mutual Funds

NRI mutual fund investments involve tax, banking, and regulatory compliance. Overlooking tax and banking compliance can lead to penalties, frozen accounts, excess TDS, and double taxation. Below are four high-risk mistakes NRIs must avoid: 

1.  Ignoring FATCA Compliance

 Regulatory Impact

• Banks and mutual funds must collect FATCA self-certification.
• Institutions can restrict or freeze accounts for non-submission.
• Transactions may be blocked until compliance updates are completed.
  

Penalty Exposure

• Reporting errors can trigger compliance penalties.
• US tax authorities may impose penalties up to $50,000 for serious non-compliance.
• Indian banks may levy administrative penalties for incorrect declarations.
  

Failure to update FATCA details disrupts investments and redemption access.

2. Choosing the Wrong Bank Account

Once residential status changes to NRI, FEMA requires converting resident savings accounts to NRE or NRO accounts.

Regulatory Risk

• Operating a resident account after NRI status violates FEMA.
• Funds may get blocked or flagged during audit checks.
• Repatriation may face delays.
  

Tax Consequences

• Foreign income must route through NRE accounts.
• Indian-sourced income (rent, dividends) must route through NRO accounts.
• Incorrect routing can trigger avoidable tax exposure.
  

Penalty Under FEMA

• Fine up to three times the involved amount.
• ₹2 lakh penalty if the amount is not quantifiable.
  

Account structure directly impacts tax efficiency and fund mobility.

3.  Not Claiming DTAA Benefits

India has Double Taxation Avoidance Agreements (DTAA) with multiple countries to prevent the same income from being taxed twice.

Financial Impact

• Without a DTAA claim, income may be subject to 30%+ tax.
• With DTAA, tax rates may be reduced to 10–15% depending on the country.
  

Documentation Required

• Tax Residency Certificate (TRC)
• Form 10F
• Form 67 (for foreign tax credit claims)

Failure to submit the required documents disqualifies the reduced tax rates.

For instance, rental income may be subject to 31.2% TDS without DTAA documentation, even if the treaty provides relief.

4.  Assuming Tax-Free Redemption

• TDS applies to all NRI redemptions in India.
• Deduction occurs at the source before payout.
  

Capital Gains Tax Structure

• Equity funds:
  
  • Long-term gains above ₹1 lakh are taxed at 10 %
  • Short-term gains are taxed at 15%
    
• Debt / non-equity funds:
  
  • Taxed as per applicable slab rates (often 30% for higher brackets)
    

Common Oversight

• Excess TDS remains unrecovered if the NRI does not file an Income Tax Return (ITR).
• Filing ITR enables refund claims where applicable.
  

Note: Redemption does not mean tax-free withdrawal. Compliance determines final liability.

How NoBroker Can Help with NRI Mutual Fund Investment?

Investing in India delivers strong long-term potential when you act with clear legal and tax awareness. Structured planning, regulatory compliance, and the right investment route help you grow wealth while participating in India’s economic growth story.NoBroker simplifies the compliance side of this journey. We help NRIs with KYC documentation, regulatory filings, and coordination for smooth financial execution. Our NRI legal assistance team of experts focuses on documentation, procedural clarity, and regulatory alignment. This structured support helps ensure your mutual fund investments remain compliant and legal.