Global Mutual Funds: Guide to NRIs for Better Returns

A global mutual fund to buy securities across different countries pools money from investors. Considering this, in India, global mutual funds in India manage tens of thousands of crores in assets, reflecting growing investor interest, driven by the increasing interest of NRIs in global diversification. It helps NRIs to invest beyond the local market, gaining exposure to major global companies such as Microsoft, Apple, and more. 

Further, this global reach assist hedge against currency and inflation risks. Additionally, through convenient platforms, NRIs can easily invest in Indian equities. With global mutual funds, NRIs get access to a growing market overseas, often improving long-term returns and portfolio stability. 

Want to know more about global mutual funds for NRIs? Read this blog and get all the information. 

What are Global Mutual Funds?

Global mutual funds are investment vehicles that pool money from investors to buy securities issued by companies worldwide. It also includes the investor's home country. Investing in these funds across industries and geographies offers instant diversification. 

Further, global funds can be structured as open-ended, closed-ended, or exchange-traded funds (ETFs). Depending on the scheme, you may invest in debt, equities, or multi-asset portfolios to reduce concentration risks. Additionally, these funds provide investors with access to develop cycles in different economies. It is a benefit impossible to get through individual stock-picking. 

This was all about global mutual funds. Moving ahead, let's know the different types of these funds. 

Types of Global Mutual Funds

There are different types of global mutual funds available for NRI investors. Depending on risk levels and goals, NRIs can invest in various types of global mutual funds. Considering this, the common mutual fund categories include:

• Aggressive Hybrid Funds: 65-80% in equity and the remaining in debt. It is ideal for long-term investors who have a higher risk-bearing capacity.
• Balanced Hybrid Funds: Under balanced hybrid funds, 40-60% allocation to both debt and equity. Additionally, with market changes, these funds are adjusted automatically.
• Conservative Hybrid Funds: Designed for steady yet safer development, these funds have 10-25% equity with a majority in debt.
• Multi-Asset Allocation Funds: As the name states, these funds invest across equity, debt, and commodities like gold. 
• Emerging Market Funds: These mutual funds expose investors to the growth prospects of emerging economies. 

However, for NRIs living in Canada or the USA, FATCA compliance means certain fund houses have restrictions. However, with additional documentation and disclosures, leading AMCs such as ICICI Prudential, SBI Mutual Fund, and more accept investments from Canadian/ USA NRIs. 

These were different types of global mutual funds available for investment for NRIs. Moving further, let's know the benefits for NRIs investing in these funds. 

Benefits for NRI Investors

Here is why NRIs should consider investing in global mutual funds:

• Geographical Diversification: When the Indian market faces difficulty, the European or US market may perform differently. Against the local volatility, it can help your portfolio to get a cushion.
• Currency Benefit: If the dollar strengthens against the rupee, your international fund holdings may generate higher returns in INR terms.
• Access to Global Leaders: Global mutual funds allow you to invest in companies like Alphabet, Apple, and Amazon, which, over the decades, have offered consistent growth. For retail investors, these opportunities to access directly are complex. 

These are some of the key benefits that NRIs get when investing in global mutual funds. Moving forward, let's know the tax rules for NRIs in global mutual funds. 

Taxation of Global Mutual Funds for NRIs

For NRIs, global mutual fund taxation depends on the fund type and holding period. Considering this:

• Equity Mutual Funds
  • Short-term capital gains (STCG): Holding within 12 months, taxed at 20%.
  • Long-term capital gains (LTCG): Holding funds more than 12 months, with an exemption up to INR 1,25,000 per year, taxed at 12.5%.
  • Tax Deducted at Source (TDS): 20% TDS on STCG and 12.5% LTCG on amounts above the exemption limit. 
• Debt and International Mutual Funds: These funds are treated as non-equity funds.
  • Capital gains (both short-term and long-term) are taxed as per the investor’s applicable income tax slab rate, regardless of the holding period.
  • TDS: Generally deducted at 20% (plus surcharge and cess), subject to DTAA benefits.

Further, international mutual funds focus on non-Indian-listed equities. However, rather than equity taxation rules, they follow debt-fund tax rules.

Additionally, NRIs from countries with Double Taxation Avoidance Agreements (DTAA) such as Oman, the UK, the UAE, and Singapore can benefit from tax treaties. Considering this, Under DTAA, NRIs can avoid double taxation by claiming tax credit or reduced tax rates in one of the countries, rather than full exemption in most cases. 

This was all about the taxation rules for NRIs on international mutual funds. Moving ahead, let's know how can NRIs investment in mutual funds in India.

How NRIs Can Invest in Global Mutual Funds?

Follow the steps below to invest in global mutual funds:

• Step 1: Complete KYC
  • To invest in global mutual funds, NRIs need a PAN card and NRI-specific KYC verification. It includes updated overseas address proof. Additionally, the CRS/FATCA declaration should also be submitted to disclose tax residency. 
• Step 2: Link Your NRI Account
  • NRIs can invest in global mutual funds through an NRE account (fully repatriable) or an NRO account (partly repatriable). Generally, most NRIs opt NRE account for flexibility. Further, under an NRO account, you need to follow FEMA rules on NRI mutual funds in India. 
• Step 3: Choose Your Funds
  • Based on 3-year and 5-year returns, the track record of the fund manager, and the expense ratio, compare different types of global mutual funds. Choose the fund that matches your investment goals, time horizon, and risk appetite. 
• Step 4: Start SIP or Lump Sum
  • Depending on your investment choice, you can start investing in your chosen global mutual funds through SIP or a lump sum. Additionally, with a little investment of INR 500 per month, you can start investing in these funds through SIP. 

So, here is how NRIs can invest in international mutual funds. Moving further, let's know the key factors to consider before investing in these funds. 

Key Factors to Consider Before Investing in Global Mutual Funds

Here are a few things NRIs should consider before investing in global mutual funds:

• Expense Ratios: Over time, higher fees can reduce returns on investment. So consider choosing funds that are cost-efficient.
• Performance Track Record: Before choosing a fund, compare the 3, 5, and 10-year performance to know its consistent return capacity.
• Currency Risk: Your investment returns can also be impacted by exchange-rate fluctuations. To mitigate volatility, consider diversification across multiple currencies. 
• Fund Manager & AMC Reputation: Choose experienced managers across global market cycles and AMCs with strong research teams. 
• Fund Size and Liquidity: Avoid investing excessively in small or large funds that may face viability issues or face redemption. 

Additionally, before choosing any global mutual fund, also consider your investment objectives, time horizon, and risk appetite. 

Final Thoughts

Lastly, there is no doubt that global mutual funds, while providing diversification across market cycles and currencies, offer NRIs exposure to international companies and economies. Additionally, these funds also invest in assets in the local market. It allows NRIs to capitalize on potential growth options globally. 

However, before investing in international mutual funds, it is vital to consider several factors. It includes risk profile, investment objectives, time horizon, expense ratio, and performance track record. Further, NRIs can streamline or start their investment journey in India simply with Savetaxs. Our financial experts simplify the KYC and investment process and help you throughout the procedure.