Mutual fund portfolio for NRI investor and income tax rules

When an NRI needs to file income tax in India?.

I am NRI staying in Gulf Oman. My current investments are as below:
₹1.50 lakh p.a. in PPF account
₹5,000 monthly SIP in SBI Heath Care Opportunities Fund
₹1,000 monthly SIP in SBI Consumption Opportunities Fund
₹5,000 monthly SIP in SBI Gold Fund
I want to invest an additional sum of ₹10,000 every month in mutual funds. My time horizon is 15 years. I am investing online from my normal savings account and not from my NRI account. I m not filing any ITR in India. Kindly advise whether I need to file tax returns? What is the maximum limit upto which an NRI can invest in mutual funds? I am staying in Muscat.
-Anil Madhavan
By Balwant Jain, investment and tax expert

It is never advisable to invest in sectoral schemes, since performance of the fund depends on the performance of that particular sector. An investor investing in sectoral funds has to time the entry and exit right to make gains. It is always advisable to invest in diversified equity funds where the fund manager makes allocation to the sector which is in vogue. So you should stop your existing SIPs in SBI Health Care Opportunities Fund and SBI Consumption Opportunities Fund. Your allocation to gold funds is too high as a percentage of your overall mutual fund portfolio. So, you should reduce your SIP in SBI Gold Fund to ₹2,000.

Investment recommendation depends on your investment time horizon and your risk profile since your time horizon is around 15 years, you can take risk of investing in equity, aggressively. You should review your investments periodically, at least once in a year.

I recommend the following mutual fund portfolio to invest ₹21,000 per month:
Axis Blue Chip Fund – ₹10,000
DSP Mid Cap Fund – ₹5,000
SBI Small Cap Fund – ₹4,000
SBI Gold Fund – ₹2,000

Since gold funds have annual expenses whereas investments in Sovereign Gold Bonds (SGB) give you interest at the rate of 2.50% on your investment amount, I would recommend you to buy SGB from the market instead of continuing with the SIP in gold fund if you can do that so as to ensure that your investment in gold on average does not exceed 10% of your overall average monthly investments.

There is no upper limit upto which an NRI can invest in mutual funds in India. However some of the fund houses do not allow residents of some countries like US, Canada to invest in their mutual funds. You do not have to file your ITR here just because you are an NRI. You have to file an ITR here in India only if your income in India before various deductions exceeds the basic exemption limit.

When you become an NRI, it is your duty to inform your bank about change in your status from resident to non resident for banking and investment purposes and the bank has to then designate your existing bank account as NRO account. Please inform your bank immediately about your NRI status.

Since, you are NRI, you can invest in the PPF account till its maturity and you cannot extend your PPF account once it matures. So, make sure you do not extend your PPF account even by mistake once it matures. It is illegal and you may face problem for claiming the proceeds.

Source - Livemint