Closing Mutual Fund Investments Before Returning From Abroad - Step-by-Step Guide

Last month, Priya called us from London. She's returning to Bangalore in December after 8 years working in the UK. She has ₹45 lakh in mutual funds invested through her NRE account.

Her question: "Should I redeem everything before I land, or can I keep my investments running?"

At Belong, we've worked with hundreds of NRIs navigating this exact transition. The decision to close or convert your mutual funds before returning home depends on your tax status, repatriation needs, and investment timeline.

The answer is - You don't have to close your mutual funds when you return to India. 

But you do need to update your status, understand how your tax treatment changes, and decide whether keeping or redeeming makes more financial sense.

By the end of this guide, you'll know exactly what happens to your mutual fund investments when you return, how RNOR status can save you tax on foreign income (not mutual funds), the step-by-step process to redeem if you choose to, how to convert your investments to resident status if you keep them, and which option makes sense for your specific situation.

Let's start with the most important thing: understanding what actually changes when you move back.

What Happens to Your Mutual Funds When You Return to India?

Let me be clear: Your mutual fund investments don't disappear when you return to India.

You don't lose ownership. Your folios remain active. Your SIPs continue running (unless you pause them). The NAV keeps fluctuating based on market performance.

What changes is your classification with the fund house and the tax authorities.

You shift from:

• NRI investor → Resident investor
• NRE/NRO bank account → Resident savings account
• NRI KYC status → Resident KYC status
• Potential DTAA benefits → Standard Indian tax treatment

What this means practically:

1. The AMC (Asset Management Company) needs to update your residential status in their records.
2. Your linked bank account must change from NRE/NRO to a resident savings account.
3. Tax treatment on redemptions changes (we'll cover this in detail).
4. Repatriation rules shift (from NRE/NRO limits to LRS limits).

But here's the good news: if you qualify as RNOR (Resident but Not Ordinarily Resident), you get a 2-3 year transitional period where foreign income remains tax-free in India. However-and this is critical-capital gains from Indian mutual funds are taxed the same whether you're NRI, RNOR, or ROR.

👉 Tip: Update your residential status with the AMC within 3-6 months of returning. The RBI considers this a "reasonable period." Delaying can create compliance issues and redemption blocks.

Also Read - What Happens to Mutual Funds If You Return to India (RNOR → Resident)

Understanding RNOR Status: Your 2-3 Year Tax Grace Period

RNOR stands for "Resident but Not Ordinarily Resident." It's a special tax status for returning NRIs that gives you the best of both worlds: you're treated as a resident for FEMA (banking and investment regulations) but enjoy NRI-like tax benefits on foreign income.

You qualify as RNOR if you meet any one of these conditions:

Source: Section 6(6) of Income Tax Act

How long does RNOR status last?

Typically 2-3 financial years, depending on when you return. If you return mid-year (say, October), you can extend your RNOR window by a few extra months.

Example:

Rajesh worked in Dubai for 12 years. He returned to India on July 1, 2024.

• FY 2024-25: RNOR (he was NRI for 9 out of 10 previous years)
• FY 2025-26: RNOR (less than 729 days in past 7 years)
• FY 2026-27: Resident and Ordinarily Resident (ROR)

During his RNOR years, interest from his UAE bank account, rental income from his London property, and capital gains from US stocks remain tax-free in India.

But here's what many NRIs misunderstand:

Capital gains from Indian mutual funds are taxed identically whether you're NRI, RNOR, or ROR. The tax rates, TDS, and exemption limits don't change based on your residential status.

Also Read - Taxation on Mutual Funds

👉 Tip: Use your RNOR years to liquidate foreign assets (US stocks, overseas property) tax-free in India. But don't rush to redeem Indian mutual funds thinking RNOR saves you tax-it won't.

Should You Close or Keep Your Mutual Funds? The Big Decision

This is the question everyone asks. Here's a simple decision framework:

✅ Close (Redeem) Your Mutual Funds If:

• You need the money immediately for a house purchase, business setup, or children's education
• You're within the exit load period and want to avoid penalties (most equity funds charge 1% if you redeem within 1 year)
• You've held equity funds for over 1 year and gains are under ₹1.25 lakh (no LTCG tax)
• You want to fully repatriate proceeds abroad and are hitting NRO repatriation limits
• You've lost confidence in the fund's performance or want to switch to different investment strategies

Also Read - How to Repatriate Mutual Fund Proceeds to Your Country

✅ Keep (Convert to Resident Status) Your Mutual Funds If:

• You believe in long-term wealth creation through Indian equities
• Your SIPs have been running smoothly and you want compounding to continue
• You're not planning to send money abroad anytime soon
• Redeeming now would trigger significant capital gains tax
• You're comfortable managing investments as a resident Indian

My recommendation?

For most returning NRIs, keeping your mutual funds and converting them to resident status makes more sense. Here's why:

• You avoid unnecessary capital gains tax
• You don't disrupt compounding
• You can continue investing in schemes that were restricted for NRIs (like PPF, NPS Tier II, intraday trading)
• You get access to more investment options as a resident

But if you have specific liquidity needs or plan to settle abroad again within 2-3 years, redeeming might make sense.

Also Read - Common Mistakes NRIs Make When Investing in Indian Mutual Funds

Tax Implications: Redeeming as NRI vs RNOR vs Resident

Let's break down the tax treatment clearly. This is where many NRIs make costly mistakes.

Capital Gains Tax Rates (Same for NRI, RNOR, ROR)

As of FY 2025-26:

Source: Bajaj Finserv - NRI Mutual Fund Taxation 2025

Important changes from Budget 2024:

• STCG on equity: Increased from 15% to 20%
• LTCG on equity: Increased from 10% to 12.5%
• LTCG exemption: Increased from ₹1 lakh to ₹1.25 lakh

TDS Deduction Rates (Where NRI vs Resident Matters)

Here's where your status affects your cash flow:

Note: For post-April 2023 investments, no ST/LT distinction for tax (slab rates up to 30%), but TDS is flat 30% for NRIs.

What this means:

As an NRI, the AMC deducts TDS immediately at source-even if your total income in India is below the exemption limit. You have to file ITR to claim a refund.

As a Resident, TDS is deducted only if your income is below the exemption threshold under the new tax regime (no tax up to ₹12 lakh (Up to 4 lakh basic exemption + rebate deductions for remaining). (source)

Capital gains are added to total income and taxed accordingly.

Example:

Meera redeemed ₹5 lakh from an equity fund after 2 years. Her capital gains: ₹60,000.

• If she redeems as NRI: AMC deducts ₹7,500 (12.5% TDS). She files ITR and claims full refund since gains are under ₹1.25 lakh.
• If she redeems as Resident: No TDS deducted. No tax liability. No need to file ITR just for this.

👉 Tip: If your capital gains are minimal and you're close to returning, consider waiting until you become a resident to avoid TDS hassles.

1. Also Read -Best Mutual Funds for NRIs to Invest in India

Option 1: Redeeming (Closing) Your Mutual Funds Before Returning

If you've decided to redeem, here's the step-by-step process:

Step 1: Check Exit Load and Timing

Exit load is a penalty for early redemption. Most equity funds charge 1% if you redeem within 1 year of purchase.

Example:

You invested ₹1 lakh on Jan 1, 2024. On June 1, 2024, the value is ₹1.15 lakh. If you redeem now:

• Exit load: 1% of ₹1.15 lakh = ₹1,150
• You receive: ₹1,13,850 (before taxes)

Strategy: If possible, wait until the exit load period ends to avoid this penalty.

Step 2: Calculate Capital Gains Tax

Use this formula:

For Equity Funds (LTCG):

Capital Gains = Redemption Value - Purchase Cost
Tax = (Gains - ₹1.25 lakh) × 12.5%

For Debt Funds:

Tax = Gains × Your income tax slab rate (usually 30% + 4% cess for NRIs)

Step 3: Submit Redemption Request

You can redeem through:

Option A: Online (Most platforms)

1. Log in to your investment platform (Groww, ET Money, AMC website)
2. Select the fund and number of units to redeem
3. Choose "Full Redemption" or "Partial Redemption"
4. Confirm your linked NRE/NRO bank account
5. Submit OTP for authentication

Option B: Offline (If needed)

1. Fill out a redemption request form (available on AMC website)
2. Mention folio number, number of units, and bank account details
3. Sign and courier to the AMC's registered office or RTA (CAMS/Karvy)

Step 4: TDS Deduction and Credit

The AMC will:

• Calculate capital gains
• Deduct TDS at applicable rates (20% for STCG, 12.5% for LTCG on equity)
• Credit net proceeds to your NRO account (or NRE if originally invested from NRE)
• Issue Form 16A (TDS certificate) within 15 days

Step 5: Repatriation (If Sending Money Abroad)

If invested through NRE account:

• Proceeds (principal + gains) are fully repatriable without limits
• No additional approvals needed
• Transfer to your overseas account via wire transfer

If invested through NRO account:

• Repatriation limited to $1 million per financial year (all NRO accounts combined)
• Submit Form 15CA and 15CB to your bank
• Banks may require CA certification for amounts > $50,000

Also Read - How to Repatriate Mutual Fund Proceeds to Your Country

Step 6: File Form 15CA/15CB (For NRO Repatriation)

Form 15CA: Declaration for foreign remittance

Form 15CB: CA certificate (required if annual remittance > ₹5 lakh)

Where to file: Income Tax e-filing portal

Process:

1. Log in with PAN
2. Navigate to "e-File" → "Income Tax Forms" → "File Income Tax Forms"
3. Select "Form 15CA"
4. Enter remittance details, amount, and purpose code
5. Upload Form 15CB (if applicable)
6. Submit and download acknowledgment
7. Provide to your bank for processing

Source: iNRI - How to File Form 15CA and 15CB

Option 2: Keeping Your Investments and Converting to Resident Status

If you're keeping your mutual funds, you must update your status. Here's how:

Step 1: Inform the AMC or Platform

Timeline: Within 3-6 months of returning to India

Methods:

• Online: Log in to your investment platform → Profile → Update Residential Status
• Offline: Submit a status change request letter to the AMC

Step 2: Update KYC from NRI to Resident

You need to re-do your KYC with updated documents:

Documents required:

• PAN card
• Aadhaar card
• Current Indian address proof (utility bill, rental agreement, Aadhaar)
• Passport (stamped entry page showing return date)
• Passport-size photograph

Where to submit:

• Through your investment platform (if they support online KYC update)
• Visit any CAMS or Karvy KRA office
• Through your AMC's branch

Processing time: 7-10 business days

Step 3: Convert Bank Accounts (Critical Step)

NRE Account:

Option 1: Convert to Resident Savings Account
Option 2: Convert to RFC (Resident Foreign Currency) Account

NRO Account:

Convert to Resident Savings Account

FCNR Deposits:

• Hold until maturity, then transfer proceeds to resident account or RFC

Why RFC is useful during RNOR period:

• Keeps your foreign currency intact (no conversion to INR)
• Interest remains tax-free during RNOR years
• Fully repatriable if you move abroad again
• Useful if you're receiving foreign income (rental, pension, freelance)

Source: ICICI Bank - NRI Returning to India Guide

Step 4: Link Resident Bank Account to Mutual Funds

Once your savings account is active:

1. Log in to your investment platform
2. Navigate to "Bank Details" → "Add Bank Account"
3. Upload cancelled cheque or bank statement
4. Verify via penny drop (small test transaction)
5. Set it as the primary account for redemptions and dividends

Step 5: Update Demat Account (If You Have Stocks)

If you hold stocks or ETFs through a Demat account:

• NRI PIS Demat: Must be closed
• New Resident Demat: Open with your broker
• Transfer holdings: Submit DIS (Delivery Instruction Slip) to move securities

Step 6: Continue or Pause SIPs

If you want to continue:

• SIPs will auto-debit from your new resident savings account
• Update your mandate with the AMC
• No need to start fresh SIPs

If you want to pause:

• Submit SIP cancellation request
• Wait for the current cycle to complete
• Restart later if needed

Also Read -Documents Required for NRI Account Opening in India - Full Guide

What Happens to Different Types of Mutual Funds?

Equity Funds

• Status: Can continue as resident investor
• Tax: Same rates whether NRI or resident
• Action needed: Update KYC and bank account only

Debt Funds

• Status: Can continue
• Tax: As per income tax slab (usually higher for residents if income is high)
• Strategy: Consider redeeming if you're in the 30% tax bracket and switching to tax-free instruments like PPF (now accessible as resident)

ELSS (Tax-Saving Funds)

• Lock-in: 3-year lock-in applies regardless of status change
• Tax benefit: Section 80C deduction applies only to Indian income (not foreign salary)
• Action: Continue holding until lock-in ends

International Funds (Investing in US/Global Stocks)

• Status: Can continue
• Tax: New Budget 2024 rules-taxed as debt funds (no indexation benefit)
• Strategy: Review if returns justify higher tax treatment

Also Read - Types of Mutual Funds

Repatriation Rules: NRE/NRO vs Resident (LRS)

This is where many returning NRIs get confused.

As NRI:

As Resident:

What this means:

If you redeem ₹2 crore from mutual funds as a resident and want to send it to your US bank account, it counts toward your $250,000 LRS limit for that financial year.

Pro tip:

If you're planning to repatriate large amounts (> $250,000), consider:

• Redeeming before you become resident if invested through NRE (unlimited repatriation)
• Spreading repatriations across multiple financial years
• Using RFC accounts strategically during RNOR period

Timeline: When to Start the Closing/Conversion Process

3-6 months before returning:

• Review all mutual fund holdings
• Calculate capital gains and potential tax liability
• Decide: close or convert?
• Check exit load periods

1 month before returning:

• If closing: Initiate redemption requests
• If keeping: Prepare documents for KYC update
• Open resident savings account (if returning permanently)

Within 1 month of returning:

• Inform banks about residential status change
• Convert NRE/NRO accounts to resident/RFC
• Update PAN card residential status on IT portal

Within 3-6 months of returning:

• Complete KYC update with AMC
• Link resident bank account to mutual funds
• Convert Demat account (if needed)
• File ITR to claim TDS refunds (if applicable)

👉 Tip: Don't wait until the last minute. Start the process 2-3 months before your return date to avoid compliance issues and redemption blocks.

Common Mistakes to Avoid

1. Delaying Status Update

Many NRIs return to India but don't inform their AMC or bank for months-sometimes years. This violates FEMA regulations and can lead to:

• Frozen accounts
• Redemption requests rejected
• Penalties

Solution: Update within 3-6 months maximum.

2. Closing NRE/NRO Accounts Immediately

Some NRIs close their NRE/NRO accounts the day they land in India. Problem: mutual fund redemptions are still linked to those accounts.

Solution: Keep NRE/NRO accounts active until all mutual fund redemptions are processed, then convert to resident or RFC.

Also Read -NRE vs NRO vs FCNR

3. Ignoring Exit Loads

Redeeming within 1 year of purchase costs you 1% extra.

Solution: Wait until the exit load period ends if your return date is flexible.

4. Not Filing ITR to Claim TDS Refund

As NRI, if TDS deducted exceeds your actual tax liability, you lose that money unless you file ITR.

Solution: File ITR every year to claim refunds. Use platforms like ClearTax or consult a CA.

Also Read - Difference Between NRI and Resident Tax Filing in India
Also Read - How to File Income Tax Return in India as an NRI

5. Misunderstanding RNOR Benefits

Many NRIs think RNOR status saves tax on Indian mutual funds. It doesn't. RNOR only exempts foreign income.

Solution: Don't rush redemptions thinking RNOR changes mutual fund taxation. It doesn't.

6. Forgetting About Nomination

Update nomination details when you become resident. Your NRI-era nomination might not be valid.

Solution: Re-submit nomination form with updated details.

Platform-Specific Processes

Groww

• Log in → Profile → "Update Residential Status"
• Upload documents (PAN, Aadhaar, address proof)
• Link resident bank account
• Processing: 7-10 days

Kuvera

• Email support team with return date and documents
• They'll guide you through KYC update
• Manual process, takes 10-15 days

ET Money

• Navigate to Settings → KYC Details → "Update Status"
• Submit documents online
• Approve via OTP

AMC Website (Direct)

• Visit AMC website → Investor Services → "Change in Status"
• Download form, fill, and courier to RTA
• Or visit AMC branch in person with documents

Forms and Documentation Checklist

For Redemption:

• ☐ Redemption request form (if offline)
• ☐ KYC acknowledgment copy
• ☐ Bank account details (NRE/NRO)
• ☐ Form 15CA/15CB (if repatriating from NRO)

For Status Conversion:

• ☐ PAN card
• ☐ Aadhaar card
• ☐ Passport (entry stamp page)
• ☐ Address proof (Indian)
• ☐ Passport-size photograph
• ☐ Status change request letter
• ☐ Cancelled cheque of resident account
• ☐ New KYC form

For Bank Account Conversion:

• ☐ NRE/NRO account closure/conversion form
• ☐ Passport (stamped entry page)
• ☐ Updated KYC documents
• ☐ New address proof

Also Read - NRE vs NRO Account for Mutual Fund Investments

Should You Consider GIFT City Investments Instead?

Here's an alternative many returning NRIs don't know about: GIFT City.

GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre (IFSC). It operates as an offshore financial hub within India.

Why it's relevant for returning NRIs:

• Investments in GIFT City are tax-free for everyone-residents and NRIs
• No capital gains tax on redemptions
• No TDS deduction
• USD-denominated products (no rupee depreciation risk)
• No NRE/NRO account needed

At Belong, we offer USD fixed deposits in GIFT City with:

• 5% annual returns (tax-free)
• Fully digital onboarding
• No repatriation limits
• Regulatory safety (IFSCA-approved)

If you're returning temporarily (planning to go abroad again in 2-3 years), GIFT City investments make more sense than traditional mutual funds.

Decision Framework: Close or Convert?

Use this simple framework:

Question 1: Do you need the money within 6 months?

• Yes → Close now
• No → Go to Question 2

Question 2: Are you within the exit load period?

• Yes → Wait until exit load expires, then decide
• No → Go to Question 3

Question 3: Will redemption trigger significant capital gains tax (> ₹2 lakh)?

• Yes → Consider keeping and converting to resident
• No → Go to Question 4

Question 4: Do you plan to return abroad within 2-3 years?

• Yes → Close and move to RFC or GIFT City
• No → Convert to resident, keep investments running

Question 5: Are you confident in the fund's long-term performance?

• Yes → Convert and continue SIPs
• No → Close and reallocate to better funds or GIFT City FDs

Final Recommendation from Belong

After working with hundreds of returning NRIs, here's what we've learned:

For most people, converting your mutual funds to resident status (not closing) makes more financial sense.

Why?

• You avoid unnecessary capital gains tax
• You don't disrupt long-term compounding
• You get access to more investment options as a resident (PPF, NPS Tier II, intraday trading)
• You can continue SIPs without restarting

Close only if:

• You need liquidity for a house, business, or education
• You're planning to settle abroad again soon
• You've lost confidence in the fund's performance

If you're unsure, here's what I'd do:

1. Keep 70% of your portfolio running (convert to resident status)
2. Redeem 30% to have liquid cash for initial settling expenses
3. Use RNOR years (2-3 years) to sell foreign assets tax-free
4. Explore GIFT City for tax-free, USD-denominated investments

At Belong, we've simplified cross-border investing for NRIs. Our GIFT City USD fixed deposits offer:

• 5% tax-free returns
• No rupee depreciation risk
• Fully digital process
• No repatriation hassles

Whether you're keeping your mutual funds or exploring alternatives, join our WhatsApp community to connect with other returning NRIs navigating the same journey.

Or download the Belong app to compare FD rates, track GIFT Nifty, and access tools built specifically for global Indians.

We're here to help you transition smoothly.

Sources:

• ICICI Bank - NRI Returning to India Financial Guide
• Belong - Mutual Funds When Returning to India
• Arthgyaan - RNOR Tax Status Rules & Benefits
• Bajaj Finserv - NRI Mutual Fund Taxation 2025
• iNRI - Section 195 TDS for NRIs
• ClearTax - NRI Income Tax in India
• DBS Bank - NRI Mutual Fund Taxation
• Reserve Bank of India
• Income Tax Department