As an Indian staying overseas, if you want to take advantage of the high growth back home, you can do so by investing in stocks and mutual funds by following some simple steps. Despite the recent dull phase in Indian equity markets, the country's economic prospects continue to be bright and its long-term growth story remains intact. But before we go ahead with the procedures for investment, it is important to know who according to Indian law is considered a non-resident Indian.
According to the Foreign Exchange Management Act (Fema), 1999, "an NRI is a person resident outside India who is either a citizen of India or a person of Indian origin (PIO)."
KYC for NRIs
Who's an NRI?
Submission of passport copy is mandatory.
A person who has been in India for 182 days or more during a financial year and 365 days or more during the
preceding four financial years qualifies as a resident of India.
Fema further clarifies that a PIO is a foreign citizen of Indian origin residing outside India who has held an Indian passport at any time or who himself or his father or grandfather was a citizen of India.
The Income Tax Act further identifies the criteria for availing tax exemptions extended to NRIs.
HOW TO GET STARTED?
All investments made by NRIs have to be in local currency, that is, the rupee. Mutual funds in India are not allowed to accept investments in foreign currency. For investing in Indian mutual funds, therefore, an NRI needs to open one of the three bank accounts-non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR)-with an Indian bank.
An NRE account is a rupee account from which money can be sent back to the country of your residence. The account can be opened with money from abroad or local funds. An NRO account is a non-repatriable rupee account. An FCNR account is similar to the NRE account, except for the fact that the funds are held in a foreign currency.
The amount that is be invested can be directly debited from an NRE/NRO account or received by inward remittances through normal banking channels. An NRI needs to give a rupee cheque or draft from his NRE/NRO account. He can also send a rupee cheque/draft issued by an exchange house abroad drawn on its correspondent bank in India.
If the investment is made through cheques or drafts, the investor should attach with the application form a foreign inward remittance certificate (FIRC) or a letter issued by the bank confirming the source of funds.
FIRC is a proof of payment received by the individual from outside the country in a foreign currency. It is issued by the bank where you have the account to receive the funds.
Other know-your-customer documents such as Permanent Account Number and address proof are also to be submitted, just as in case of resident investors.
POWER OF ATTORNEY
After you have made the initial investments, is it possible for you to keep track of your money and react to market movements that at times may call for additional purchases, switches or redemptions even as you are away?
Mutual funds allow a power of attorney (PoA) holder to take these decisions on your behalf. All that the PoA holder needs to do is to submit the original PoA or an attested copy of it to the fund house. The PoA should have signatures of both the NRI and the PoA holder. The PoA holder’s signature will be verified for processing any transaction.
Similarly, an NRI can make a resident Indian his/her nominee in the mutual fund scheme. An NRI can also be the nominee for investments made by a local resident. Fund houses also allow an NRI to have a joint holding with a resident Indian or another NRI in a scheme.
HOW TO REDEEM?
Redemption proceeds are either paid through cheques or directly credited to the investor's bank account. All earnings will be payable in rupees.
As mentioned earlier, investments made through inward remittances or from NRE/FCNR accounts are fully repatriable. Hence, earnings made by redeeming the units or through dividends are fully repatriable.
However, in case of investments made through NRO accounts, only the capital appreciation is repatriable, not the principal amount.