How an NRI invests in Indian mutual funds

Yes, you can invest — and no PIS account

A large number of NRIs assume they are shut out of Indian markets. They are not. Under FEMA, a Non-Resident Indian is permitted to invest in Indian mutual fund schemes on a full, repatriable or non-repatriable basis. The scheme you buy is the same scheme a resident buys; what differs is the account the money comes from and how the tax is collected.

Here is the fact that surprises most people, and that is worth stating plainly because it removes the single biggest imagined blocker: you do not need a Portfolio Investment Scheme (PIS) account to invest in mutual funds. A PIS account is the RBI mechanism for an NRI to buy and sell individual shares on a stock exchange. Mutual funds sit outside it. You invest directly through the fund house using your NRE or NRO bank account — no PIS permission, no separate broking arrangement for the fund itself.

What you do need is an NRE or NRO bank account in India, a completed KYC that reflects your NRI status, and a FATCA/CRS declaration. We cover each of those below.

US, Canada and Australia: the honest version

This deserves its own section rather than a footnote, because for a large share of NRIs it is the whole question.

The Foreign Account Tax Compliance Act (FATCA) requires financial institutions to report accounts held by US persons to the US authorities, and similar reporting reaches Canadian residents. Meeting that obligation costs an Indian fund house time and money, and many have decided the volume of US and Canada NRI business does not justify it. So they decline those two countries outright. Others accept them, but only on paper forms submitted in person or by post — not through their websites or apps.

The practical consequence: a US or Canada NRI can usually still invest, but through a narrower door, and often an offline one. H2 Investment handles that offline route for the United States and Canada, and works with NRIs in Australia as well. We will tell you honestly at the outset which fund houses are currently open to your country of residence, and we will not pretend the online path exists when it does not.

Two caveats we would rather you hear from us than discover later. First, the set of AMCs that accept US and Canada residents genuinely does change, so we confirm it at the time you apply rather than quoting a fixed list. Second, US and Canada residents carry their own home-country tax and reporting obligations on foreign investments (PFIC rules in the US, for example) — those are real, they are specific to you, and they are a matter for a tax adviser in your country of residence, not for us. More on that under tax.

NRE vs NRO, and what "repatriable" really means

Almost everything about how your investment behaves later is decided by one choice at the start: which account you invest from. So it is worth getting right.

• NRE (Non-Resident External) account. This holds income earned outside India — your overseas salary, remitted back home. Money invested from an NRE account is fully repatriable: when you redeem, the proceeds (after tax) can be sent back abroad without a separate ceiling.
• NRO (Non-Resident Ordinary) account. This holds income earned inside India — rent, dividends, a pension, the proceeds of something you sold here. Money invested from an NRO account is non-repatriable beyond a limit: repatriation from NRO balances is capped (currently up to USD 1 million per financial year, subject to the prevailing RBI rules) and needs the right tax paperwork to move.

"Repatriable" is not a property of the mutual fund. It is a property of the money's origin, carried through the account it came from. Invest from NRE and the repatriable character follows the investment out again; invest from NRO and it does not. If sending the money back abroad one day matters to you, that decision is made the moment you choose the funding account — not at redemption. This is the single most common thing NRIs wish they had understood earlier, which is why we raise it before you invest a rupee.

The paperwork: KYC and the FATCA/CRS declaration

NRI KYC asks for a little more than a resident's, because your address and your tax residency are both abroad. In practice you should expect to provide:

• PAN card.
• Passport (and, where relevant, visa or proof of NRI/OCI status).
• Overseas address proof — a document showing where you actually live abroad, in addition to any Indian address.
• In-person or video verification — identity is confirmed either in person or through a video KYC process, so a live check of you against your documents is part of it.
• Your NRE or NRO bank account details.
• A FATCA/CRS self-declaration, stating your country or countries of tax residence and your tax identification number there. This is mandatory. It is how the fund house meets its cross-border reporting duties, and an application will not complete without it.

For US and Canada residents on the offline route, the same information is captured on physical forms rather than a portal — the requirements do not change, only the channel does. We prepare the correct forms for your case so the application is right the first time rather than bouncing back.

Tax at source: how TDS differs from a resident's

This is the part that catches people out, so read it as mechanism, not as a number to plan around.

When a resident redeems a mutual fund at a gain, no tax is withheld at that moment; the resident settles capital-gains tax later, when they file their return. For an NRI, tax is deducted at source (TDS) on the capital gain at the time of redemption — the fund house withholds it before the proceeds reach you. The rate that applies depends on the type of scheme (equity-oriented versus other) and how long you held it (short-term versus long-term), and those definitions and rates are set by law and revised from time to time, so the current figures should be confirmed at the time you redeem rather than assumed from an article.

There is a second mechanism worth knowing exists: the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence. Where a DTAA applies, it may reduce the rate at which tax is deducted, and it is meant to prevent the same income being fully taxed twice. Claiming a DTAA benefit typically needs supporting documentation, such as a Tax Residency Certificate from your country of residence.

Here is where we stop, and we want to be clear about why. H2 Investment is a mutual fund distributor, not a tax adviser. Your tax liability depends on your total income, your country of residence, the DTAA in force, and rules that change — and it is specific to you in a way we are neither licensed nor positioned to work out. So we will explain, as above, that TDS is deducted at source and that a DTAA may reduce it. We will not tell you what your tax will be, and we do not handle your overseas tax position. For that, speak to a qualified tax adviser in your country of residence. That is not a disclaimer we are adding to be safe; it is genuinely the right person for the question.

Getting the money back out

When you redeem, the proceeds are paid into the bank account linked to the investment — and, as covered above, whether they can then travel abroad depends on whether that account is NRE or NRO. Redemptions from an NRE-funded investment flow back out with the repatriable character intact. Redemptions from an NRO-funded investment sit within the annual repatriation limit and need the tax paperwork (typically the relevant certification from a chartered accountant confirming taxes are settled) before a bank will remit them overseas.

None of this is a reason to avoid an NRO investment — for India-earned money it is often exactly right. It is simply a reason to know, on day one, which pocket you are investing from and what that means for the exit.

Your next step

You now know the shape of it: you can invest, you do not need a PIS account, the funding account decides repatriation, the FATCA/CRS declaration and overseas-address KYC are mandatory, and tax is withheld at source with a tax adviser — not us — owning the numbers. What is left is your specific case.

Tell us your country of residence and whether you will invest from an NRE or NRO account, and we will tell you honestly what is open to you — including, for US and Canada residents, which fund houses currently accept the offline application and what the paperwork looks like.

Response SLA for NRI enquiries: within two working days. We would rather set that expectation plainly than imply someone is answering a phone in New Jersey at three in the morning. (Our India phone lines run Monday to Sunday, 8:00 AM to 10:00 PM IST; for NRI enquiries, the two-working-day written reply is the commitment to hold us to.)

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