NRIs in the US cannot continue their SIPs but can hold the units

I am moving to the US for a few years. I am told that India mutual funds cannot be bought by NRIs in the US and Canada. I have substantial mutual fund holdings and SIPs. After I move, can I continue my SIPs, or will I have to discontinue it. Also, can I maintain my mutual fund holdings or will I have to liquidate them before leaving India?

—Sarang Kidwai

Non-resident Indians living in the US or Canada are subject to restrictions when it comes to investing in Indian mutual funds. So, yes, once you become a US-resident NRI, you will not be able to continue investing in many of the mutual funds in India. There are some exceptions though, such as Sundaram Mutual Fund, Parag Parikh Financial Advisory Services Pvt. Ltd (PPFAS), and L&T Mutual Fund. So, you may want to verify with the fund houses where you have holdings. That said, your existing investments (existing units from past investments or systematic investment plans (SIPs) can still be held in your name without any issue. You do not have to liquidate them before leaving India. Only future investments (as well as future SIP instalments) will be affected by your transfer of residence. However, gains from your holdings here in India may be subject to taxation in US, and you would need to confirm that with a tax attorney in US at the appropriate time.

I have recently started investing in mutual funds. I have a lump sum of Rs50,000. How and where can I invest it; and what would be the return on it in about 10 years from now. If I invest Rs5,000 via systematic investment plan each month instead, will I have to continue paying each month for the next 3 years? I don’t know if I will be able to do that. If I want to withdraw before 10 years, when can I start redeeming my investment with profits?

—Wilson Vas

Mutual funds are among the most flexible investment instruments around and they offer a lot of conveniences and choices to investors to allow them to invest as they desire. To answer your question, SIPs do not need to be compulsorily invested over 3 years or more. That time period—3 years or more—is usually used to communicate to investors that an investor would need to be patient with their SIP for that period to reliably see good profits from their investments. It is not meant as a mandatory investment period. In your case, if you would like to invest your Rs50,000 as 10 instalments of Rs5,000 in an SIP, you may very well do so without any issues. And after you are done investing, you may choose to redeem (withdraw) any time you wish. The only issue there would be, if you withdraw before your investment completes 1 year, you will likely be hit with both exit load (a penalty for early withdrawal) of about 1% and capital gains taxes (short term gains). These would be good to avoid, and hence investors are counselled to not withdraw from their mutual fund investments in a short duration. Regarding returns, please note that mutual funds do not guarantee any returns and they are subject to price movements in the stock market (or debt market if you are investing in debt funds). However, given the history of Indian stock market, it would not be unrealistic to expect about 10-12% annual return from a good equity mutual fund over the long term (greater than 7 years).

I am 36 and have a 4-year-old daughter. I wants to invest Rs30,000 in mutual funds every month. Currently I am investing in the following funds: Rs3,000 each in Axis Mid-cap Fund (G) and Franklin India Prima Fund (G); and Rs4,500 each in ICICI Pru Focused Bluechip Equity Fund (G) and Kotak Select Focus Fund (G). Please suggest few funds.

—Srikar Gandhi

You are currently investing Rs15,000 a month and you are seeking to double the amount. Given your current portfolio structure, I am assuming that you are looking at an aggressive long-term portfolio for your daughter and or your retirement. The funds that you are investing in are good funds—you have 20% in a pure mid-cap fund, 30% in a large-cap fund, and the remaining 50% in diversified multi-cap funds. To add another Rs15,000 to this portfolio, I would suggest a mix of existing funds and new funds. You could bolster your large-cap investment by doubling your allocation to the Blue-chip fund in your current portfolio. You could add a second mid-cap fund in the form of investing Rs3,000 in Mirae Asset Emerging Blue-chip Fund. The remaining Rs7,500 would do well in a balanced fund such as Aditya Birla Sunlife Balanced ’95 Fund. With these additions, you would be investing 30% in a large-cap fund, 25% in diversified funds, 20% in mid-cap funds, and 25% in a balanced fund that will bring in some debt allocation to your portfolio as well.

Srikanth Meenakshi is co-founder and chief operating officer,

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First Published: Thu, Oct 12 2017. 04 30 AM IST

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