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A GUIDE TO MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS FOR NON-RESIDENT INDIANS
Investing in mutual funds and exchange-traded funds (”ETFs”) can be a smart and effective way for Non-Resident Indians (“NRIs”) to grow their wealth and achieve their financial goals. These investment platforms offer a range of benefits, including diversification, professional management, and the potential for higher returns. Mutual Funds represent collective investment possibilities where funds from multiple investors come together to invest in a diversified portfolio of securities. On the other hand, ETFs are traded on stock exchanges, providing investors with the flexibility to buy and sell shares throughout the trading day at market prices.
UNDERSTANDING MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS
Mutual funds gather money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds are actively managed by professional fund managers who aim to outperform the market. One popular mutual fund in India is the SBI Bluechip Fund, which primarily invests in large-cap stocks of established companies. The net assets under management (“AUM”) of the mutual fund industry, which registered 35% growth in 2023-24, continued to post a stellar performance in April 2024 and grew by nearly 38% on a year-on-year basis to touch Rs 57.26 lakh crore in April 2024.
ETFs are investment funds traded on stock exchanges, mirroring the performance of a specific index or asset class. The Nifty 50 ETF tracks the performance of the Nifty 50 index, which represents the top 50 companies listed on the National Stock Exchange (“NSE”) of India.
BENEFITS FOR NRIs
For NRIs, Mutual Funds and ETFs offer several compelling advantages. They provide access to professionally managed portfolios, enabling diversification across asset classes and geographic regions. Additionally, they offer liquidity, transparency, and flexibility, allowing NRIs to adjust their investment allocations according to changing market conditions.
NRIs can invest in mutual funds and in ETFs in India under the Foreign Exchange Management Act (“FEMA”) regulations. They can invest in both equity and debt-oriented mutual funds or debt ETFs, subject to certain conditions and documentation requirements.
TAX IMPLICATIONS
Understanding the tax implications and regulatory framework is crucial for NRIs for investing in Mutual Funds and ETFs. NRIs are subject to specific tax regulations governing capital gains, dividends, and repatriation of funds. Compliance with regulatory requirements, including Know Your Customer (“KYC”) norms is essential to ensure smooth and hassle-free investment experience.
Investing in Mutual Funds and ETFs as an NRI involves grappling with various tax implications. These include taxation on investment income, capital gains, tax deduction at source (“TDS”), and taxation on return of funds. Understanding these taxes is crucial for effective tax planning and regulatory compliance.
REGULATORY COMPLIANCE
Navigating regulatory compliance involves understanding and adhering to the laws, rules, and regulations that govern investments for Non-Resident Indians in Mutual Funds and Exchange-Traded Funds.
- KYC Norms: NRIs are required to comply with KYC requirements, which involve providing identity and address proofs, as well as other documentation to verify their identity and eligibility for investing in Mutual Funds and ETFs.
- FEMA Regulations: NRIs must adhere to FEMA regulations, which govern foreign exchange transactions and regulate investments made by NRIs in India.
- Taxation Laws: NRIs investing in Mutual Funds and ETFs need to comply with tax laws applicable to their investment income, capital gains, and return of funds.
- Reporting Requirements: NRIs may have reporting obligations to regulatory authorities in both India and their home country. This may include filing tax returns, reporting investment income, and complying with other regulatory filings as per the laws of the respective jurisdictions.
- Compliance with Fund Regulations: NRIs need to ensure that the Mutual Funds or ETFs they invest in comply with regulatory requirements set by authorities such as the Securities and Exchange Board of India (“SEBI”) in India or equivalent regulatory bodies in other countries.
KEY FINDINGS
Investing in mutual funds and ETFs offers NRIs a convenient and effective avenue to engage with India’s dynamic financial markets and work towards their financial aspirations. By familiarizing themselves with the prevailing regulations, selecting appropriate funds, and adhering to the requisite processes, NRIs can make well-informed investment choices. Furthermore, keeping abreast of tax guidelines and consulting with financial experts can enhance the efficiency of their mutual fund investments in India.
HOW WE CAN HELP ?
- Our firm provides legal representation to individuals facing the challenges of dual identities. This includes advocating for their rights in cases of discrimination or when their status is questioned.
- Our lawyers guide clients through the immigration laws that affect individuals with dual identities, ensuring compliance while protecting their rights.
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- Our professionals offer pro bono services to marginalized individuals with dual identities and help them to ensure that their legal needs are met, regardless of their financial situation.
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