Investments prove beneficial only if the one possess the right knowledge and patience. Though mutual funds are widely available ,people sometimes are out of its reach. Well the equity brokers don’t like that. They’ve made it easy to invest in equity wherever you live.
They have setup offices all over and even banks offer demat services. This availability is to suit the requirements of the public and to make some money of course 🙂 . Just as residents of India are free to apply at any time, the procedure changes a little for NRIs.
Investing in mutual funds through Power of Attorney
For an NRI to invest in India, he or she should open an NRO or NRE account with a bank in India. The transaction currency is Indian Rupee. Most fund houses do not accept investments from people who are residing in other countries through normal savings account.
It is due to regulations and the limitation that the fund houses have in bringing onboard non-resident investors. Yes, you can make occasional deposits (I have done it many times in the past:-) ) but legally you have to do it through an NRE account.
The scenario is for Indian mutual fund schemes. It is mandatory for the fund manager to register with the regulatory if they are handling more than the capped accounts. For example, the Dodd-Frank Act of the USA insists that fund managers register with the US regulators and follow the rules when the account handling is more than 15. Although there is a limitation, lots of NRIs have the option to invest in India.
Simple steps allow NRIs to invest a significant amount in the stock market and mutual funds. Although most people invest in property, considering the stock markets is a healthy option. Both shares and the mutual funds have a high yield in comparison to real estate.
For instance, Mr. A invests Rs. 10 Lakhs in real estate for a period of 10 years. At the end of the tenure, the value of the asset reaches Rs. 40 Lakhs. It is because the growth of the real estate stands at an average of 15% per annum. Now, Mr. B invests Rs. 10 Lakhs in equity funds for ten years. Given the point that the mutual funds average return is at 26% annum, the investor holds funds that are worth Rs. 1 Crore at the end of the tenure period. Furthermore, he can sell the funds or acquire more to increase the face value further.
Starting the process
NRIs can invest in India using the local currency, India Rupee. Indian mutual funds do not accept foreign currency for transactions. Therefore, it is essential to open NRE, NRO or FCNR account with any bank in India.
The NRE account is a rupee account, and the investor can send back the amount to the residence country. NRO account is non-repatriable account, and FCNR account is similar to NRE account but the funds are in foreign currency. The documentation for opening an account is analogous to that of the residents in India.
If the investment is through drafts and cheques then, it is important to attach the FIRC or a letter from the bank that confirms the source of funds. Selecting of the funds/stocks depends on several factors. The important thing to consider is the reason for the investment and the period of investment.
As there are a number of variants available in the market, selecting a fund can be tedious at the beginning. Consulting the fund manager in such cases resolves most of the doubts and helps in opting for the best funds. It is further possible to keep a track of the investments.
Power of Attorney
However, if the investor travels extensively due to work, it will be difficult to maintain a track of stocks and mutual funds. It further becomes tedious in managing the account. The same is the case for some NRIs. Under such instances, the power of attorney becomes a useful tool.
The POA helps the investor to rely on a trusted person to carry out the monitoring of the funds and take decisions on behalf of the investor. Most investors do not understand the importance of the POA and handover it to the fund manager. It is here that the fund managers use the POA to gain personal advantage rather than consider the importance of their clients.
Therefore, it is imperative to choose a trusted person outside the fund house. Furthermore, the applicant can issue a restricted/specific POA that allows the person to transact only on a limited basis. For example, an individual may use the power of attorney to manage only the mutual funds but not any other assets.
Check out: 5 best tax saving ELSS mutual funds in India
Transaction/Investment through Power Of Attorney
The older format of the Power Of Attorney does not have the signature of the acceptor. Fund houses no longer accept the power of attorney that does not have the signature of the acceptor. It is vital for these companies to possess a document that clearly indicates the acceptance of a person as the POA acceptor and valid signatures.
Therefore, it is essential for both the people to be present at the time of signing the document. Even unregistered POAs are acceptable. However, before proceeding with the transactions, it is imperative for both the investor and the Power of Attorney holder to complete the KYC norms. Completion of the KYC is essential for the companies to initiate the process of transactions.
The investor can choose to register the POA before opening a new mutual fund folio, after fulfilling the primary norms. The application form contains all the details, and the investor should mention the name of the POA holder. Entering the details of the POA holder PAN details is vital. As mentioned earlier, it is important to attach the completed KYC and notarized copy along with the duly filled application form.
Even though the folio is in the name of the investor, both the investor and the POA holder can carry out the transactions. Furthermore, even the POA holder can open another account on behalf of the investor. The set of documents required for opening another account follows the same set of guidelines as above. Underneath the signature, it is vital to mention that the signature is on behalf of the Constituted Attorney.
Registering Power Of Attorney with an existing folio
The investor can hand over the POA to a trusted person and register him to an existing folio. The procedure includes submission of a letter that states the details of the attorney holder, the PAN details and a request to register the holder to the folio.
It is further vital to submit a copy of the KYC application, POA document, PAN card copy and the notarized copy. As soon as the fund house accepts the registration, the POA holder is eligible to carry out the transactions on behalf of the investor.
The holder will take the decisions according to the market conditions and ensure that the investor reaps benefits. The role of the Power Of Attorney holder has prominence. Therefore, it is essential that the investor select a trusted person who would make healthy judgments.
The investor at any point of time can cancel the authority given to the POA holder. The cancellation process requires the investor to submit a letter to the fund house stating the annulment by the POA holder.
The procedure is simple and takes about a day or two for the process to complete. The removal process appears in the transaction statement as non-financial deal. It is vital for an investor to inform the fund house about the cancellation of the Power Of Attorney holder.
If the fund house does not receive any intimation about the cancellation, the POA holder still holds the authority to monitor and operate the account. Submitting the copy of the cancellation letter to both the fund house and the fund company deregisters the POA holder.
The redemption proceeds credit directly into the investor’s bank account or paid through cheques or NEFT/RTGS transfer. The amount will be in Indian Rupee. Only NRE and FCNR accounts are entirely repatriable. Therefore, even the dividends earned through the process are also repatriable. However, in case of the NRO account, the capital appreciation is only repatriable, but not the principal amount.
Tax is applicable to mutual funds and stocks. The rules applicable for NRIs are the same as that of residents in India. However, there is possibility that the NRI investor will have to pay tax in the country of the residence. It means he, or she will have to pay double tax.
The rules change from one country to another. Therefore, it is preferable to seek complete details about the same before proceeding with an investment in mutual funds and stocks in India. The only relief one can expect if the Indian government has DTAA, (Double Taxation Avoidance Agreement treaty) signed with that country.
The best example is the USA, where an NRI can invest in India and enjoy the ADTT. For instance, Mr. A invests in mutual funds in India, makes short-term capital gains, and pays 15% as tax. However, the rate of the increase is equal to 30% in the USA. The investor would then pay tax only for reminder amount. It means the investor enjoys tax benefit in the USA for the tax paid in India.
Just a recollection of points discussed...
NRIs are eligible to invest in India. An NRI requires a bank account and necessary documents to begin investing in India. Apart from the real estate sector, they can choose the mutual funds and stocks. If an investor finds it difficult to operate the account in India, they can choose a person who would manage the entire operation through power of attorney.
The POA holder receives complete authority and the right to make decisions on behalf of the investor. It is advisable to choose the spouse as the POA holder or any close relative who is trustworthy. The decisions taken by the POA affect the return and the growth of the investment amount.
Investing in India is no longer a tough task. It is with your minor effort you can enjoy the benefits of investing in equity.If you’re unable to monitor it invest in mutual funds through Power Of Attorney to a trusted person. I repeat – a TRUSTED PERSON.
Have you given a Power Of Attorney to someone? Do you think it is wise to give POA to someone?