Keep in mind modalities such as premium paying modes, currency to invest in and whether you want to repatriate the money
Many non-resident Indians (NRIs) want to invest in Indian mutual fund schemes and other financial instruments. One of the main reasons being their hope of returning to India post retirement. But how easy is it for NRIs to invest in financial instruments in India? Read on to know more.
Investing in Indian MFs
As per provisions of the Foreign Exchange Management Act (FEMA), NRIs are allowed to invest in Indian MF schemes on a repatriable or a non-repatriable basis. However, a lot depends on which fund house is ready to accept the investment money from NRIs. Fund houses usually hesitate to accept investment from NRIs, especially those residing in the US or Canada, because of the complexities associated with the Foreign Account Tax Compliance Act (FATCA).
Explaining the nature of complications that these NRIs face, Sunil Subramaniam, MD and CEO, Sundaram Mutual Fund says, "NRIs are required to pay taxes on their 'income earned anywhere in the world' in their country of residence. Since equity and debt market profits are now subject to taxation in India, there is the prospect of double taxation of their income in the absence of a double tax avoidance treaty between India and these countries. Further, it is a cumbersome process for NRIs to obtain, consolidate and report these incomes. Also, India has an obligation to report these incomes to the respective countries. Thirdly, NRIs also bear the risk of currency devaluations to their incomes."
Mutual fund houses accepting investments from NRI investors are required to comply with all the extant regulations and, hence, insist on a FATCA declaration to be signed by the investor in addition to seeking the Tax Residency Number of their resident country.
Though the process for investing in MFs is similar for NRIs and Indian citizens, some fund houses insist on investments by NRIs to be done only through offline transactions, for transparency and security reasons, says Raj Khosla, founder and Managing Director, MyMoneyMantra.com. "It ensures that the investor (or Power of Attorney) is present while making the investment, and all regulatory guidelines and compliance rules are perfectly met," he says.
Buying life insurance
Often, NRIs also want to buy life insurance as protection for their loved ones. Since many insurers have restructured their processes of issuing insurance policies to the NRIs, the latter are able to buy any plan even while staying outside India.
Dheeraj Sehgal, chief distribution officer – institutional, Bajaj Allianz Life Insurance says, "In some countries there is a lack of clarity on tax implications of life insurance purchased in India, and this sometimes becomes a deterrent for them to purchase a policy in India. When NRIs purchase a life insurance product in India, they are, in many ways treated the same way as resident Indians, including tax exemptions under the Income Tax Act, 1961. To purchase life insurance in India, especially online, NRIs should hold an Indian passport and submit some additional documents such as the NRI questionnaire and provide FATCA declaration, wherever applicable."
More disclosure for NRIs in USA, Canada
NRIs residing in any part of the world including Canada and the US can buy multiple life insurance plans. Anand Pejawar, president-operations, IT and international business, SBI Life Insurance says, "There is no limit or restriction on the number of policies or the sum assured that an NRI can buy. However, NRIs in the USA have to give a declaration on a format called 'FATCA Form' and those who are residents of Canada have to fill in the 'Common Reporting Standard Form' along with the proposal forms of all the investments that they have done through insurance or otherwise in India."
Some NRIs cannot buy life insurance
Insurance companies may accept or reject the application for life insurance by NRIs depending on the country they are residing in. Pejawar adds, "The country of residence is a major factor in case of NRI customers which is taken into consideration while underwriting the case. There are many 'negative' listed countries from where such life insurance proposals if received are generally rated up or declined on 'Residential Grounds'. For certain 'negative' countries, a medical examination is insisted upon even if the sum assured applied for does not warrant one."
How to buy, pay premium
It is a common myth that NRIs have to be physically present in India while buying life insurance. Sehgal explains "Life insurers offer policies online, enabling NRIs to buy online from their country of residence. They can either purchase policies directly from an insurer's website or from an aggregator website."
The premium payment mode depends on the currency in which the policy has been issued. Policyholders can pay premiums through either NRO or NRE/FCNR bank account. Similar to premiums, payouts from the life insurance companies will be as the currency mentioned in the insurance policy. Pejawar says, "Normally, in case of an NRI, the premium payable on the life insurance policy is paid from the NRE account maintained in India. In such cases where the premiums have been received from NRE account, the claim amount paid is fully repatriable. In case the NRI pays the premium through his NRO account maintained in India, the maturity proceeds or survival benefit/living benefits will be credited to that account in Indian rupees only. The TDS is deducted from the maturity proceeds as per the prevailing IT rules. There are no rules that bar the NRI/PIO from buying a rupee-denominated policy from India."
The claim settlement process is subject to the terms and conditions of the insurer. This is because each insurance company requires its customers to submit different kinds of documents for validation of the claim made and, thereby, proceeding to settle the same.
HOMELAND BECKONS
- NRIs from USA and Canada have to comply with FATCA while investing in MFs or buying life insurance
- Some fund houses may insist on the NRI buying only through offline mode for transparency/security
- For NRIs buying life insurance, repatriation of claims will depend on which account was used to pay premium
- There are some 'negative countries' where insurers may reject the life insurance application
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Rupee")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}