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Kripananda Chidambaram
Fintotal.com
Traditionally, NRIs have been more comfortable investing in real estate in India. Real estate
investment gave returns in the country at an average of about 14-17% in this decade. Sensex
returned 19% in the decade and top performing diversified equity mutual funds have given
returns in the range of 25-30%. Though past performance cannot be a pure indicator of future
performance, but the pattern will stay true if the Indian economy grows in the 8-9% range in
the next decade. So it makes good sense to get a life beyond real estate!
In absolute amount it does make a huge difference!
Type
Averagereturn Investedamount
Years Value
Realestate
15%
INR10lacs
10
INR40lacs
Sensex
19%
INR10lacs
10
INR57lacs
DiversifiedEquityFund
26%
INR10lacs
10
INR1cr
Non Residents Indians and Persons of Indian Origin can invest in mutual fund schemes in India.
In case of NRIs no special approval is to be sought from authorities such as the RBI. They can
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Debt funds provide safety of capital but the returns are relatively low. Investments that are for
shorter period, priority is safety of capital over returns hence debt funds are preferred.
Equity funds gives you scope to make higher returns provided they are invested for longer
periods. For investments that are long-term, inflation is the major cause of worry. Equity funds
have the power to blunt the effects of inflation.
Long-term goals
Equity mutual funds are further divided to cater to different segments of people.
Further to identify the type of equity fund suitable to you:
Define-The purpose of the investment. If the purpose of the particular investment is to meet life
goals higher education, retirement, marriage, purchase of home, etc call it as core needs. If it is
for general wealth creation call it as satellite needs.
To choose the appropriate equity fund to meet your long-term need follow these simple rules:
Incaseyouareinvestingforcoreneedsthenchooseadiversifiedlargecapfundoranindex
fund
Incaseyouareinvestingforsatelliteneedsthenchooseeitherathematicorsectorfund.
You can go for a maximum of 3 mutual fund scheme. The basis for this thumb-rule goes back to
our experience with mutual funds. Three well chosen diversified mutual funds (or index funds)
give you all the diversification you need. Any more only add to your complexity, and likely lower
your returns. These three funds are useful for beginners and pros alike, since the fund
managers are experts who are dedicated to manage your money well.
Procedure
For an NRI the procedure of applying in a mutual fund is similar to the one followed by
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residents. The completed application form must be submitted at the investor service centers
along with cheques or bank drafts. Details of the Indian bank account of the investor must be
furnished at the time of application. Alternately online application can be made. Investment
cannot be made in foreign currency. Rupee cheques drawn from the investors bank account in
India or from abroad payable in a bank in India or Rupee drafts purchased abroad payable at
the city where the application is made must be provided. Usual facilities like nomination,
appointing Power of Attorney is available for NRI investors as well.
Redemption proceeds are paid in Indian Rupees by cheque to the account number provided at
application. For select banks they may credit proceeds to the account directly. If investments
are made on non-repatriable basis redemption proceeds will be credited to the NRO account of
the investor. Similarly if a person turns an NRI after purchasing of units the maturity proceeds
will not qualify for repatriation. However dividends are fully repatriable in all cases.
Tax Treatment
Mutual fund units are treated as capital assets and attract capital gains tax in India. If held for
more than 12 months long term capital gains tax is applicable and for periods less than that
short term capital gains tax is applicable. No tax is to be paid on dividends received. Indexation
benefits are available for long term capital gains. TDS applies on capital gains tax. TDS
certificate or Form 16 A is dispatched to the investor along with redemption warrant. Mutual
fund units do not attract wealth tax.
The summary of income tax rates applicable for NRIs on mutual funds for the year 2012-2013 is
below
ShortTerm
CapitalGains LongTermCapital
FundType
GainsTax
Tax
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Equity
15.45%
Debt
30.90%
Nil
20.6%
(withindexation)
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