How and where to invest in India?

Non resident Indians or NRIs are looking more and more towards their home country to invest their money. NRI is defined as anybody who resides outside India for major part of the year because of his employment. Since 1950s, Indian economy has been growing steadily and investors from all over the world have expressed interest in taking advantage of this growth. After the reforms of 1990 with the commencement of the era of liberalization, India has become one of the favorite investment destinations of NRIs.

Why invest in India?

NRIs will find it beneficial to invest in India because of the following:

·         Since liberalization, regulations have been relaxed and scope for investment has increased significantly. Taxation policy now favors NRIs.

·         Indian economy shows steady growth based on real advancement. Unlike tax havens the growth of the country is based on tangible results and investors are likely to earn high returns.

·         The process of investing has become much easier as most transactions are now net based.

·         Many Indian banks provide necessary loans to NRIs like home loans.

·         Sentimental reasons are also active, especially for those who have close relatives living in India.

The procedure

In order to invest in India, the following steps will have to be taken:

·         If you decide to invest in mutual funds, then you will first have to select the fund house through which to invest. If you are living in USA, finding a good fund house may be difficult. This is because, according to US law, if a fund house has more than 15 clients residing in USA, it has to follow American regulations in addition to that of SEBI. Fund houses therefore avoid American residents to avoid this dual regulation. If you are living in any other country, you can choose your fund house easily. If you live in America, your choice will be restricted to only those fund houses which take American clients.

·         The next step is to open a NRE or NRO account through which you can carry out your investments.

·         Open a demat account with a broker of your choice – someone who can advise you regarding investment in India.

·         Keep track of the money. This can be difficult, especially if the portfolio is well diversified. A common practice is to confer power of attorney on a local representative.

·         Finally, keep in mind your tax obligations, both in India and the country where you are currently residing.

In order to complete any of the steps, you must first obtain a PAN from India. As an NRI, this is offered at

Where to invest in India?

Now that you know broadly how to invest in India, you need to find out which market you should put your money in. the choices are as follows:

1.    You can open your own account in Indian banks as permitted by the Reserve Bank of India. Then these accounts can be used to invest in various savings and investment schemes. This option is particularly suitable for those who have blood relatives living in India like elderly parents because joint account holding is also permitted. In addition to saving and deposit schemes, this account can also be used to buy properties in India.

2.    NRIs can invest in various growth and long term investment options including mutual funds, shares, debentures, Government securities, National Savings Certificate and IPOs. However, you need to check the current regulations to know more about limit of investment, type of company etc.

3.    Finally, land and property are the best investment if you are looking for security. NRIs cannot buy agricultural land in India. However, you can buy houses, bungalows, flats and other properties – both private and for business.

Tax rates on Mutual Fund Investment for NRIs.

India is one of the favourite investment destinations for investors all over the globe and especially for NRI’s. India has seen a huge jump in the investments made by NRI’s in India and one such instrument is investments in Mutual funds.

The only thing that restricts lot of NRI’s to invest is the lack of knowledge relating to the taxation rules with respect to NRI investment in Mutual funds. All investors should have the basis knowledge about taxation which will help them in choosing the product they want to invest in more prudently.

Here is an attempt to cover Mutual Fund Taxation for NRIs specifically.

Income from Mutual Fund can be divided into 1. Capital Gains or 2. Dividends. So taxation of Mutual Funds in India can be divided in 2 parts Capital Gain & Dividends.

Taxation on Capital Gains

In order to understand the taxation rules with respect to capital gains it would be wise to understand what capital gains mean. Capital gains can be defined as “the appreciation in value of the investment with respect to the investment originally made is called Capital gains”.

So let’s say an investor invests INR 100,000 in a mutual fund and is able to sell it for INR 150,000 the extra 50,000 that he made after selling his units is termed as capital gains.

If the investors sells the allotted mutual fund units before 365 days of making the investment it is termed as Short Term Capital Gains; and

If the investors sells the allotted mutual fund units after 365 days of making the investment it is termed as Long Term Capital Gains.

The taxes on the capital gains are also dependent on the kind of fund the investment is made in and can be divided in two parts Capital gains in Equity funds and Capital gains in Debt funds.

Capital Gain Tax on Equity Mutual Funds

Any fund that has more than 65% holding in equities will be termed Equity Fund and the rest are termed as debt funds.

Long term capital gains on equity funds is tax free whereas short term capital gains in equity funds attracts 15% TDS in case of NRIs.

Capital Gain Tax on Debt Mutual Funds

A fund that is not an equity fund can be termed as debt fund and in case of NRIs the mutual fund companies deduct a TDS of

30% in case of short term capital gains and

20% in case of long term capital gains.

Taxes on Dividends

In order to understand the taxation rules with respect to dividend it would be wise to understand what dividends mean. Dividends can be defined as “the payment received from the mutual fund companies at regular intervals when an investor chooses the dividend option instead of the growth option”.

As Capital gains taxation on dividends and dividend distribution taxes are based on the type of Mutual Fund the investment is made – Equity or Debt.

Taxes on Dividends from Equity Mutual Funds

Dividends in case of an equity fund are tax free at the hands of the investors and there is no dividend distribution tax for the mutual fund companies for equity funds.

Similarly there is not tax on the dividends received from debt mutual funds but the Mutual fund companies are liable to pay dividend distribution tax to the Income tax department.

Dividend Distribution Tax on Debt Mutual Funds

There are no taxes on dividend distribution in case of equities mutual fund.

Dividend Distribution Tax on Debt Mutual Funds

The dividend distribution taxes are again based on the type of fund the investment is made in.

Dividend Distribution Tax on Liquid/Money Market Schemes

Any fund which invests in money market instruments or in securities that have maturity of less than 90 days is called Liquid/Money Market Schemes.

Mutual fund companies are liable to pay 27.038% tax (25% Tax + 5% Surcharge + 3% Cess) and hence the same is deducted from the dividends.

Dividend Distribution Tax on Debt Funds other than Liquid/Money Market Schemes

Here 13.519% tax (12.5% Tax + 5% Surcharge + 3% Cess) will be deducted from the dividends.

NRI Tax on Indian Mutual Funds

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Indian Mutual Funds

Indian Railway Finance Corporation Limited (IRFCL Bonds) – Download Application

Indian Railway Bonds ApplicationISSUE: Indian Railway Finance Corporation Limited Bonds (IRFC TAX FREE Bonds).

Issue Opening Date: Friday, January 27, 2012
Issue Closing Date: Friday, February 10, 2012
Interest Rate: 8.10% annually.
Allotment Basis: First-come-First-serve basis.

DOWNLOAD: Indian Railway Finance Corporation (IRFC) Bond Application Form (CLICK HERE)


  • The Company shall issue Bonds upto an aggregate amount of Rs 6,300 crores in one or more tranche(s), on or prior to March 31, 2012 pursuant to CBDT’s Notification dated September 23, 2011 which authorised the Company to raise tax free bonds aggregating up to Rs 10,000 crores in the financial year 2011-12.
  • Credit Ratings of “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE and “ICRA AAA by ICRA indicating Highest Degree of Safety in terms of timely servicing of financial obligations.
  • Bonds to be allotted on first-cum-first serve basis up to the limit reserved for each category of investors
  • Bonds can be held in physical or in dematerialized form, at the option of bondholders
  • Bonds are proposed to be listed on the BSE and the NSE


Instrument: Tax Free Secured Redeemable Non-Convertible Bonds in the nature of Debentures
Instrument Form: In dematerialized form as well as physical form, at the option of Applicants.
Trading: Compulsorily in dematerialized form
Issue Size: Rs. 6,300 Crores in one or more tranches in the financial year 2011 – 2012
Credit Rating: “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE & “ICRA AAA” by ICRA
Tenor/Redemption Date: 10 Years and 15 Years from the deemed date of allotment
Trustee for the Bondholders: Indian Bank
Depositories: NSDL and CDSL
Proposed to be listed on: BSE & NSE
Interest on Application Money: @ 8.00% p.a. on the amount for which Bonds are allotted to the Applicants subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, from the date of realization of the cheque(s)/ demand draft(s) or 3 (three) days from the date of banking of the application (being the date of submission of each application as duly acknowledged by the Bankers to the Issue) whichever is later, upto one day prior to the Deemed Date of Allotment.
Interest on Application Money which is liable to be refunded: @ 4.00% p.a. on application money that is liable to be refunded to the Applicants in accordance with the provisions of the SEBI Debt Regulations, or other applicable statutory and/or regulatory requirements, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, from the date of realization of the cheque(s)/ demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of presentation of each application as acknowledged by the Bankers to the Issue) whichever is later, upto one day prior to the Deemed Date of Allotment.

Provided that IRFC shall not be liable to pay any interest on monies liable to be refunded in case of (a) invalid applications or applications liable to be rejected, and/or (b) applications which are withdrawn by the applicant.


  • Interest on these Bonds shall be exempt from income tax and shall not be included while computing the total income as per provisions under section 10 (15) (iv) (h) of Income Tax Act, 1961, as amended.
  • Since the interest income on these Bonds is exempt from tax, there shall be no deduction of tax at source.
  • Wealth Tax is not levied on investment in Bonds under section 2(ea) of the Wealth-tax Act, 1957.

>>> IRFCL Bonds Application Form: DOWNLOAD HERE