How NRIs can invest in mutual funds
From launching offshore funds to setting up shop abroad AMCs are keen to get NRIs to invest in India.
Asset management companies (AMCs) in India have been increasing their focus to attract non-resident Indians (NRIs) to invest in mutual funds (MFs) in India in the past few years. MF industry says that official statistics available with them which registrar and transfer agents provide, close to 6% of the overall MF assets belong to NRIs. This figure, say experts, is much higher if you just take into account only equity funds.
From launching and marketing offshore funds to setting up shop abroad to attract the Indian investor settled abroad, fund houses are keen to get you to invest in the India story. “There is a strong appetite for Indian debt and equity products in the overseas market. Sovereign wealth funds, pension funds, institutional and high net worth individuals have invested through our funds. We have set up branches across various locations and expect to double our AUMs (assets under management) over the next three years”, says Sundeep Sikka, chief executive officer, Reliance Capital Asset Management Co. Ltd.
One of the first things you need to do is to set up a bank account in India to facilitate movement of your money. Investors can either set up non-resident (external) rupee account (NRE) or a non-resident ordinary rupee account (NRO) with a bank. “An NRE account is preferable because it gives you the flexibility of repatriating your proceeds out of India without any restriction”, says Anil Rego, a Bangalore-based financial planner. In other words, if you wish to invest in India from your overseas earnings, you need an NRE account. Financial planners also recommend NRE accounts for those who are not sure of how long they’ll stay overseas and where chances of them settling abroad, eventually, are high. However, you need an NRO account if you are an NRI, and get receipts in India, like rent.
Are there any restrictions?
NRIs from most countries can invest in India through MFs available here. For US-based NRIs though, it gets a bit tricky. Most US-headquartered fund houses that operate in India do not accept money from a US-based NRI because there is a rule laid out by the US securities market regulator, Securities and Exchange Commission (SEC), which says only those fund houses, globally or locally, registered with SEC can accept US NRI or citizen’s money.
“In light of that, lot of AMCs in India have chosen to not accept funds from investors residing in the US”, says Anthony Heredia, chief executive officer, Morgan Stanley Investment Management Ltd. This also means that US-based fund houses that operate in India such as Franklin Templeton Asset Management (India) Ltd, Morgan Stanley Investment Management Ltd and so on also don’t accept NRI money that come from those in the US.
Some Indian fund houses, though, still accept money from US NRIs, but they are essentially those that don’t have any business interests in the US and therefore don’t need to interact with SEC. Says a Mumbai-based financial planner who requested anonymity: “This is not an Indian rule, but is a US government rule. That is why we invest our NRI clients’ investments in pure Indian-domiciled fund houses.”
Most other NRIs can invest in any MF schemes available in India.
If you are a US-based NRI, there are tons of options available for you as well. Lots of MFs based in the US have India-dedicated MF schemes, even those who have Indian subsidiaries. Often, these MFs fall back on the research that their Indian subsidiary provides. For instance, Franklin India Growth Fund, a MF scheme available for the US citizens in the US, invests in companies that are based in India. “Such schemes are managed in the US and are actively managed. But they use the experience and research inputs that their Indian offices give because local talent always helps”, said the Mumbai-based financial planner quoted earlier.
Apart from international fund houses available in the country where you stay, that invests in India, you can use your NRE or NRO accounts to invest in MF schemes domiciled in India.
For NRIs staying in other countries, Indian fund houses have either opened branches abroad or hawk their own offshore funds there. Fund houses such as UTI Asset Management Co. Ltd, Kotak Mahindra Asset Management Co. Ltd, Reliance Capital Asset Management Ltd and Birla Sun Life Asset Management Co. Ltd have offshore funds to attract NRI investors. Most Indian fund houses have opened shops in the Gulf region and southeast Asian countries such as Singapore.