Invest Mutual Funds

Dear Readers,

I had a query from NRI Investor regarding NRI Investments in Mutual Funds. I have addressed the query and I thought it would assist for other Investors as well.

I am a non-resident Indian working overseas and I am nearly 56 years old. My plans are to retire from the present job within a year or two and to become a resident Indian.
I have some reasonable amount of savings, all of which are deposited either in NRE or FCNR fixed deposits fetching very little interest rate.

My queries are:

1) Are there any SIP schemes for NRI citizens? Can the proceeds from such schemes be deposited back to NRI funds on maturity? Will this attract any taxes?

Reply:

NRI can invest in the SIP schemes available in India. The redemption amounts are usually paid in Cheque in the name of the First Holder and the bank account number would be mentioned in the cheque. Alternatively some mutual funds will also give direct deposit to your account with select banks. The redemptions are taxable under Section 2(42A) of Income Tax Act. If the units are held for a period of more than 12 months, it would be treated for Long-Term Capital Gains Tax Rate. If the investments are kept for less than 12 months, then it would be treated for short term capital gains tax rate.

2) Keeping my status as a NRI, can I join a normal Indian Rupee SIP scheme? Will there be any objections for this from a legal point of view?

Reply: 

 With your status as NRI, you have to invest in SIP schemes only in Indian rupees, But the amounts should be paid in drafts / cheques from your NRE / FCNR Accounts. In case of cheques the amount should be payable at the city where the application form is submitted. In case of Drafts purchased through FCNR account, an account debit certificate from the bank issuing the draft has to be submitted.

3) Considering that I join a SIP scheme with mandatory minimum installments, will there be any flexibility to invest variable higher amounts during the mandatory period -or- a higher/lower amount during the period after the mandatory minimum time is over. I would also like to know if I can continue being in the SIP scheme after the madatory minimum period with variable amounts of deposits every month or even at irregular months.

Reply:

You can always increase or decrease the investments in SIP schemes but on regular basis. You can give request to change the SIP amounts on a regular basis.

4) What will be the general taxation structure for the capital gains from SIPs? Will there be any difference in taxation, if I remain in the scheme for more than 1 year, 5 years or 10 years?

Reply:

Capital gains vary for short term (investments less than 12 months) and for long term (investments more than 12 months). Again the tax varies for different schemes i.e. equity and non equity schemes. Short term capital gains for a non equity funds are taxed at normal tax rates applicable.

5) What are the normal applicable charges that can be expected in an SIP scheme. Adminitrative charges, other hidden commissions etc. etc.? Will there be any periodical recurring charges?

Reply:

Capital Gains Tax (Long term or short term) whichever is applicable would be applied for your investments. There would not be any other periodical recurring charges.

6) On an average, do you think that an SIP plan (diversified into growth,equity and balanced schemes) will fetch higher returns than in long-term fixed deposits in banks. Of course, I do realize that there are market related risks and that past performance is only an indication and not a gurantee.

Reply:

When you invest in an SIP plan and stay invested for a minimum period of 2 years, you can certainly expect higher returns than long term fixed deposit in banks.

Happy Investing!!