Yes, NRIs can invest in Indian mutual funds. A lot of people in India are either coming back to India or going out. There is a certain need for a lot of investors whether they want to return to India or just benefit from the growth of the Indian economy.
Indian taxation system does not distinguish between NRIs. However, residents of the USA and Canada are treated differently because these countries impose specific requirements for mutual fund companies. Due to PFIC norms of the IRS, it is better to invest in direct equity for US-based NRIs. As far as Indian taxation goes, NRIs are imposed TDS and the same does not apply to resident Indians. The countries that have a bilateral tax treaty with India, NRIs resident of those countries can claim back any additional tax. Let’s now look at the asset categories that may be good options for NRIs. Debt Indian banks are better placed in comparison with mutual funds. The tax advantage and higher interest rate with almost guarantee of the return make FDs better. As NRI, you should prefer a fixed deposit with a good bank.
Equity
This is where you are at an advantage. There are plenty of options that can favor your investment growth. You can select one index fund or a combination of two funds in a large-cap category. Similarly, you can invest in two small-cap and two mid-cap funds. This combination of a mutual fund over a course of time should create a reasonable return.
Gold
If you are investing for a certain goal to be met in India, this category y investment may maybe suitable. Purely from investing standpoint, the gold mutual fund may not be an exceptional option.
The real risk of investing in India is the currency risk. There is only a historical basis for knowing that INR depreciates in comparison with USD, the same may or may not hold. Assuming the same holds, still India offers 4-5% more than the USA considering the currency risk. This can be achieved only if the selection of funds is excellent and rotated well.
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