For an individual living in the UAE, India, or those with a NRI status, investing in mutual funds is a great investment opportunity to consider for wealth accumulation. This article seeks to analyze who can participate in mutal funds, what would be the best investing rationale, and what shareholders must pay attention to.
Selecting Appropriate Mutual Funds Depending on Your Investment Risk Strategy Investers are encouraged to adopt the “40:40:20” stratgey which entails:
40% of funds will go into large – cap mutual funds
40% into multi cap mutual funds
20% into mid-cap funds.
This investment mix will help minimize risk and at the same time increase profit.
The following table puts forward an expected breakdown of equity and other investment instruments depending on differing age brackets.
Investment per Age group
Equity Investment Other Instruments
20-30 80% 20% 30-40 70% 30% 40-50 40% 60% 50-55 50% 50% 55-60 40% 60% 60 + 30% 70%
Investment in various equity fund types:
These funds invest in a blend of:
- mid cap equity and
- large – cap equity along with some debt
- alternatives
Like all other mutual fund classes, these funds also invest but deleveraged into Public limited Company only and with a certain threshold:
- The top hundred public limited companies in terms of market capitalization.
- Small private limited companies (small cap companies).
Multi cap funds:
- These funds are less confined than the other mutual funds as these allocate funds to different types of companies irrespective of their sizes.
Types of Risks and Capital Allocation
Risk Classification
Balanced Funds
Large-Cap Funds
Low-Risk
40%
20%
Medium-Risk
20%
40%
High-Risk
0%
40%
Extreme-Risk
0%
20%
Mutual Funds Under the Custody of Minors
Investments in a mutual fund can be made for a minor’s account by a parent or legal guardian. The guardian must submit the following items:
• Application form
• PAN card
• Passport
• Birth certificate
• KYC documents
Procedure to Update Purchase Records for Minors
Invest in a Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP)
Monitor the account until the minor turns 18
Change the account status upon reaching adulthood by sending an application form
Add new bank account information on record
In case of a death of the guardian, the substitute guardian shall have to produce:
Death Certificate
KYC documents of the new guardian
Minor’s cancelled cheque
Advantages of Opening Investment Accounts for Minors
Aids in building a corpus for higher education and nuptial expenses
Enables prudent investment strategies
Relieves over-exposure to equities over time to control the risk
Investing Through Dual Accounts for Non Residents of India (NRIs)
NRIs can invest in mutual funds in India by opening NRE/NRO accounts. Two account categories used by NRIs from the UAE, USA, UK, Canada and Australia for easy investment are:
Direct Investment
Steps Involved:
Complete application
FATCA and CRS compliant declaration
Submit KYC documents:
Copy of the passport
Proof of residence outside the country
Proof of residence in India
One passport size photo
Pan card
Visa copy or resident permit
OCI Card
Cancelled cheque
Power of Attorney( PoA) Investment
To manage their mutual fund investments, NRIs are allowed to designate a Power of Attorney (PoA). The PoA Holder must:
Onboard the KYC process
Open and manage the mutual fund account’s trading activities
Set up a Powers of Attorney account that is properly notarized
Payment Options Available To NRIs
Payments may be received by cheque
Some evidence to support the origin of the funds is needed
There is a requirement to submit evidence of Foreign Inward Remittance Certificate (FIRC)
Upon maturity, mutual funds will be withdrawn
Proceeds are credited to an NRE/NRO account
Tax on dividends received after the sale of underlying shares is paid
Digital certificate of TDS payment is issued
Mutual Funds Nominee
Shares can be acquired in the name of an individual or in joint name
As a result of death of the unit holder, the mutual fund units are subject to the will and are transferred to the legal nominee.
The legal representative becomes the owner of the investment.
What is the procedure for transferring an investment after death?
In case of death of the sole proprietor of an investment the co investor is required to submit:
Death certificate, copy, signed by the gazetted officer or manager of a bank.
Cashed checks of deceased participant.
The bank account details belonging to the deceased
Information on FAFSA and the CRS
In The Case Where A Nominee Has Not Been Assigned:
The following documents are required:
A written request from the next of kin.
Certificate of death authenticated by a gazetted officer or a bank supervisor.
Nominee’s KYC documents.
Indemnity bond without registering the nominee.
Personal affidavit for legal substantiation.
Proof of relationship in case the amount is under Rs. 2 lakh.
Full documentation if the sum is over Rs. 2 lakhs.
conclusion:
Invest in SIP for children mutual funds.
Use a 40:40:20 ratio for mutual fund investments.
Investors with NRE or NRO accounts can invest NRIs Indian mutual funds.
Nominate a person to manage mutual fund investments.
Investments should be transferred with due regard after an investor passes away.
Using these strategies, investors from India, UAE, and any other nation will be able to manage their investments effectively. Flexibility, adjusted risk and return, and diversification make mutual funds an integral part of any financial planning.
