Introduction:
Non-resident Indians (NRIs) constantly look for investment avenues that can provide attractive returns along with the convenience of investing from their home country. Mutual funds are one such instrument that allows them to invest in a mix of stocks, bonds, and other money-market securities. Furthermore, they can choose to invest as lump sums or through Systematic Investment Plans (SIPs).
For NRIs, investing through SIPs holds particular significance. It enables them to regularly allocate fixed amounts to a selected mutual fund scheme, fostering a disciplined investment habit and potentially leading to significant wealth accumulation over time. Additionally, SIPs are renowned for their flexibility, allowing NRIs to initiate or terminate investments according to their financial circumstances without incurring penalties.
Top benefits of SIPs for NRIs
Let’s explore the key advantages of mutual fund SIPs for NRIs:
1. Regular and disciplined investments
SIPs allow NRIs to invest a fixed amount at regular intervals, which can be monthly, quarterly, semi-annually, or annually. They foster a disciplined investment habit in investors. Making disciplined and regular investments helps them build a substantial corpus over time without requiring a large upfront investment.
2. Growth potential
Mutual funds can provide potentially high returns in the long term. They are one of those instruments that expose your investments to the equity markets, allowing you to gain from market fluctuations. Historically, mutual fund schemes have provided better returns than most fixed-income generating avenues, such as fixed deposits, provident funds, etc.
Furthermore, you can select a mutual fund scheme as per your investment goals and risk appetite. For example, if you want to invest for your long-term goals, you can opt for equity-based mutual funds. Similarly, if you are looking to fulfil your short-term financial goals, you can invest in debt or hybrid mutual funds.
3. Portfolio diversification
Mutual funds pool money from investors with common investment objectives and invest them in diversified assets, including stocks, bonds, and other money-market securities. This diversification helps spread risk and diminishes the impact of market volatility on your investments.
Investing solely in a single asset class can expose your investments to inherent risks. Any adverse events can lead to significant losses. However, mutual fund SIPs encourage portfolio diversification to mitigate these risks and avoid potential losses.
4. Rupee cost averaging
One of the standout benefits of investing in mutual funds through SIPs is rupee cost averaging. It allows you to buy more units when the Net Asset Value (NAV) of a fund is lower and fewer units when the NAV is higher. Over time, this can lower your average buying cost per unit, mitigating the impact of market volatility on your investments. As an NRI, you might not be able to monitor market conditions constantly, and thus, rupee cost averaging can be a significant advantage.
5. Convenience and flexibility
Mutual fund SIPs are incredibly convenient for NRIs. Several online investment platforms allow you to invest in mutual funds online from the comfort of your home or office. All you need to do is open your investment account with your basic KYC (Know Your Customer) documents.
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You can even start SIPs in mutual funds by visiting the respective Asset Management Companies (AMCs) websites. These websites allow you to start, stop, or redeem your SIP investments anytime and from anywhere. Such flexibility is particularly beneficial for NRIs who may need to adjust their investments due to changes in income or financial goals.
6. The expertise of the fund manager
Another key aspect of investing in mutual fund SIPs is the fund manager’s expertise. Professional fund managers analyse market trends, and economic conditions, and make informed investment decisions on behalf of investors. As an NRI, you are not required to constantly monitor your portfolio to generate higher returns. The fund manager will proactively work on your behalf.
7. Tax benefits
India has Double Taxation Avoidance Agreements (DTAAs) with many countries, which can help NRIs avoid being taxed twice on the same income. Additionally, long-term capital gains (LTCG) from equity mutual funds are taxed at a relatively lower rate, making SIPs a tax-efficient investment option for NRIs.
To conclude
Mutual fund SIPs offer a host of advantages for NRIs. They can help them achieve their financial goals while enjoying peace of mind and gaining substantial returns over time.
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