Can an NRI invest in Indian funds and shares? The short answer
Yes, and the legal permission is rarely what stops people. Non-resident Indians may hold units in Indian mutual funds and buy listed shares on Indian exchanges, under the Foreign Exchange Management Act framework and the associated Reserve Bank of India Master Directions.
What constrains a portfolio is narrower and more practical. It is which bank account funded the investment, because that decides permanently whether you can take the money out again. It is whether the asset manager will accept you at all, because several will not if you live in the United States or Canada. And it is that tax is deducted from your proceeds before they reach you.
The Portfolio Investment Scheme route for listed shares
Secondary market purchases of listed shares by an NRI run through the Portfolio Investment Scheme, established under the FEMA non-debt instrument rules and administered through authorised dealer banks under RBI direction.
The defining requirement is designation. You nominate a single bank branch to handle your PIS transactions, and every purchase and sale of listed shares must pass through it. The bank is not simply holding cash — it reports your transactions and monitors the individual and aggregate ceilings applying to NRI holdings in an Indian company.
Not everything requires this. Subscribing to a public issue, acquiring shares by gift or inheritance, and holding mutual fund units all sit outside the scheme. It is specifically the exchange-traded purchase of listed equity that pulls you into it.
Repatriable and non-repatriable: a decision made at the outset
This is the distinction that causes the most regret, because it is settled when you invest rather than when you want your money.
| Funded from | Classification | Where proceeds go |
|---|---|---|
| Inward remittance, NRE or FCNR account | Repatriable | May generally be remitted abroad, subject to FEMA conditions |
| NRO account | Non-repatriable | Credited to the NRO account, subject to the general remittance limit |
The classification follows the funding account and does not change later. Money invested from an NRO balance produces a non-repatriable holding even if the underlying funds originally came from abroad, and selling it does not convert it. Extracting those proceeds means working within the general remittance framework under FEMA, with the certification that route requires — described in our guide to repatriation from India.
If any part of your Indian portfolio is meant to fund a life outside India, the account you invest from matters as much as what you invest in. Our guide to NRE, NRO and FCNR accounts sets out how the three differ.
Setting up: demat, trading and the declarations
A Permanent Account Number is effectively a prerequisite, and listed shares are held in dematerialised form through a depository participant, so a demat account is the means of holding rather than an optional convenience.
Where NRI onboarding diverges from a resident's is in the declarations. SEBI-mandated KYC requires proof of your overseas address alongside your Indian one, and separately you must complete FATCA and Common Reporting Standard self-certification, declaring every jurisdiction in which you are tax resident and the corresponding taxpayer identification numbers. These are not formalities. They determine what information about your account is reported onward, and an inaccurate or outdated declaration is a reporting problem rather than an administrative one.
Repatriable and non-repatriable holdings are usually kept in separate demat accounts, which is the practical expression of the distinction above.
The United States and Canada obstacle
Mutual fund investment is open to NRIs as a matter of Indian law, but each asset management company sets its own acceptance policy — and a significant number decline or restrict investors resident in the United States and Canada.
The cause is compliance burden rather than prohibition. FATCA and the arrangements applying to Canadian residents impose identification, registration and reporting obligations on the fund house, and several concluded the cost was disproportionate to the assets involved. Practice varies widely: some houses refuse such investors outright, some accept them only through physical rather than online applications, some restrict which schemes are available, and some accept them without difficulty.
Check the current position with the specific fund house rather than assuming, because policies shift. And treat this as an operational constraint on where you can invest, not as a view on where you should — nothing here is a recommendation of any fund or asset class.
Tax deducted at source, and why the cash flow differs
A resident investor redeeming a mutual fund holding receives the full proceeds and settles the tax later through advance tax and self-assessment. A non-resident does not. Under the withholding provisions of the Income-tax Act applying to payments to non-residents, tax on capital gains is deducted at source by the payer before the proceeds are released.
The consequence is one of timing as much as amount. Deduction is applied to the gain as computed by the payer, on the information available to it, which may not reflect reliefs, treaty positions or losses elsewhere in your portfolio. Where more has been withheld than is finally due, recovery comes through filing an Indian return and claiming the refund, so the money is out of your hands for a period.
How gains are taxed: mechanism, not fixed numbers
The Indian capital gains regime turns on two variables, and both have been amended repeatedly.
The first is the character of the fund. Equity-oriented schemes — broadly, those meeting the prescribed threshold of investment in domestic equity — are taxed under a different set of provisions from other funds, including debt-oriented schemes, which have themselves been the subject of specific amendments in recent Finance Acts. The second is holding period. Gains are split into short-term and long-term, with the qualifying period differing by asset class and the applicable rate differing between the two.
The rates, the holding-period thresholds and the definition of an equity-oriented fund have all changed within recent memory, and stating current figures here would be more likely to mislead than help. The structure is what endures: identify the class of asset, identify the holding period, then find the rate that CBDT and the current Finance Act specify for that combination as at your date of disposal.
Treaty relief may modify the outcome. Some agreements allocate taxing rights over gains to the country of residence and others reserve them to India, and several were renegotiated to remove earlier exemptions. Relief must be claimed and evidenced, normally with a Tax Residency Certificate — see DTAA relief and the Tax Residency Certificate.
What changes when you return to India
Returning affects your position under the Income-tax Act and under FEMA, and the two are tested separately. Once you are resident, the Portfolio Investment Scheme ceases to apply and holdings generally need redesignating with the bank, the depository and each asset manager.
RNOR status can shelter foreign income for a limited run of years, as covered in our guide to RNOR planning for returning NRIs. It does nothing for Indian-source gains, which remain within the charge throughout. Where the timing of a disposal is genuinely open, the interaction between your residential status and the treaty position is worth examining before acting rather than after — and your status itself can be worked through with the India residential status test.
Compliance caveat
This guide describes the general operation of the Portfolio Investment Scheme under the FEMA non-debt instrument rules, the repatriable and non-repatriable distinction, KYC and FATCA-CRS declaration requirements, and the mechanism by which Indian capital gains tax and withholding apply to non-residents. It does not state current rates, holding-period thresholds or remittance limits, all of which change and must be confirmed against the provisions in force at your date of transaction. It does not address sectoral or company-level investment ceilings, unlisted securities, derivatives, or the treatment of these holdings in your country of residence. Nothing here is a recommendation of any fund, share or asset class, and no investment or tax advice is implied. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Confirm your position with a qualified Indian tax adviser and your bank before transacting.
How Global Investments can help
Most of the difficulty in an NRI portfolio is structural rather than analytical: money invested from the wrong account, an asset manager that will not accept a US or Canadian resident, or a disposal timed without allowing for tax withheld at source. Our advisers work with clients holding Indian securities to map which holdings are repatriable and which are not, establish what the funding history actually supports before a remittance is attempted, and coordinate with Indian tax specialists on withholding, treaty claims and the redesignation required on a return to India. Where another country also taxes the same gain, we look at both jurisdictions together rather than in sequence.
Frequently asked questions
Do I need a Portfolio Investment Scheme account to buy Indian shares?
For secondary market purchases of listed shares on a recognised stock exchange, yes. The Portfolio Investment Scheme under the FEMA non-debt instrument rules requires an NRI to route those trades through a single designated bank branch authorised by the Reserve Bank of India, which reports the transactions and monitors sectoral limits. Certain other routes, including subscribing to a public issue or holding units of a mutual fund, sit outside the scheme and do not require designation.
What decides whether my investment is repatriable or non-repatriable?
The source of the money, decided at the moment you invest. Funds arriving from abroad or drawn from an NRE or FCNR account give a repatriable holding, so sale proceeds can generally be sent out again subject to the applicable FEMA conditions. Funds drawn from an NRO account give a non-repatriable holding, and proceeds return to the NRO account where the general remittance limit and documentation requirements apply. The classification follows the funding account and is not changed retrospectively.
Why do some Indian fund houses refuse investors in the United States and Canada?
Because of the reporting and registration burden created by the US Foreign Account Tax Compliance Act and the parallel arrangements applying to Canadian residents. Indian asset managers must identify and report accounts held by those investors, and several concluded the compliance cost outweighed the business. The result is that a number of fund houses decline such investors entirely, while others accept them only through offline paper applications or restrict the schemes available. This is an asset manager policy decision, not a rule of Indian law.
Is tax deducted at source when I redeem an Indian mutual fund holding?
Generally yes, and this is a structural difference from the treatment of a resident investor. Under the withholding provisions of the Income-tax Act, capital gains payable to a non-resident are subject to deduction at source by the payer before proceeds are released, whereas a resident settles the same liability through advance tax and self-assessment. The practical effect is that cash is withheld at redemption and any excess is recovered only later, through your Indian return.
Can a double tax treaty reduce Indian tax on my capital gains?
Sometimes, but it depends entirely on the specific treaty and the class of asset. Some agreements allocate taxing rights over gains to the country of residence, others reserve them to India, and several were amended to remove earlier exemptions. Where relief is available it must be claimed rather than applied automatically, and it is normally supported by a Tax Residency Certificate from your country of residence together with the prescribed declaration form.
What happens to my portfolio when I return to India permanently?
Your status changes under both the Income-tax Act and FEMA, and the two are tested separately. The Portfolio Investment Scheme designation ceases to apply once you are resident, holdings usually need to be redesignated with the bank, depository and asset manager, and NRE balances are converted. RNOR status may shelter foreign income for a limited period, but Indian-source gains stay within the charge throughout, so returning does not by itself change the Indian tax position on Indian holdings.
Do I need a PAN and a demat account to invest?
In practice, yes for both. A Permanent Account Number is required for the tax reporting attached to almost all Indian securities transactions, and listed shares are held in dematerialised form through a depository participant, so a demat account is the mechanism of holding rather than an optional extra. Mutual fund units can be held in statement of account form instead, though many investors consolidate them into the same demat account.
This guide is general information only and does not constitute financial, legal or tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Indian tax and exchange control rules change and individual circumstances vary. Always seek advice from a qualified adviser in the relevant jurisdiction before acting.