You've spent years building a mutual fund portfolio in India while working abroad. Now you're planning to return home permanently.
Should you sell everything? Will your investments vanish? What happens to your SIPs?
We've helped many NRIs through this exact transition at Belong.
The good news: you don't lose your mutual funds when you return to India. But you will need to update your status, convert bank accounts, and understand how your tax treatment changes -especially if you qualify for RNOR status, which can save you significant tax for 2-3 years.
Our community at Belong helps NRIs navigate these transitions smoothly. This guide walks you through every step, from updating KYC to maximizing RNOR benefits.
By the end, you'll know exactly what to do with your mutual funds when you return home.
The Short Answer: You Don't Need to Sell Your Mutual Funds
Let me clear this up first. When you return to India, your mutual fund investments stay exactly where they are.
You don't need to redeem them. You don't lose ownership. Your folios remain active.
What changes is your classification with the fund house. You move from being an NRI investor to a resident investor.
This shifts your tax treatment, changes your linked bank account requirements, and affects repatriation rules.
Think of it like changing your mobile number-you keep the same account, just with updated details. The mutual fund units you hold continue to grow or decline based on market performance, regardless of your residential status.
The catch? You must inform your Asset Management Company (AMC) or broker about your status change.
This is a regulatory requirement under FEMA (Foreign Exchange Management Act). Failure to update can create complications during redemption or when filing taxes.
👉 Tip: Start the status update process as soon as you know your return date. It can take 2-4 weeks to complete all formalities.
Understanding Your New Residential Status: RNOR vs ROR
When you return to India, you don't immediately become a regular resident for tax purposes. There's a transitional status called RNOR (Resident but Not Ordinarily Resident) that can benefit you significantly.
What is RNOR Status?
RNOR is a special tax classification for returning NRIs. It allows you to be treated as a resident for FEMA purposes but enjoy NRI-like tax benefits on foreign income.
You qualify as RNOR in a financial year if you meet any one of these conditions:
- You were an NRI in 9 out of the 10 years preceding the current year
- You stayed in India for 729 days or less during the 7 years before the current year
- You're not a tax resident in any other country, your Indian income exceeded ₹15 lakh, and you stayed in India for 120-181 days
Also Read -FEMA Guidelines Every NRI Should Know
Why RNOR Matters for Your Mutual Funds
Here's the critical difference: RNOR status holders are taxed only on Indian-sourced income. Your foreign income-rental from overseas property, interest from foreign bank accounts, capital gains from US stocks-remains tax-free in India.
There have been updates suggesting that for individuals qualifying as RNOR under the deemed residency rule, their global passive income might be subject to tax in India. (Source)
But here's what many NRIs miss: capital gains from Indian mutual funds are always taxable in India, regardless of whether you're NRI, RNOR, or ROR. The tax rates are identical across all three statuses.
Where RNOR helps is if you hold foreign assets. Interest from RFC accounts, foreign rental income, and withdrawals from 401k accounts remain tax-free during your RNOR years
Also Read - Difference Between NRI and Resident Tax Filing in India.
From RNOR to ROR
RNOR status typically lasts 2-3 years. Once you stop meeting the conditions, you become ROR (Resident and Ordinarily Resident).
As ROR, your global income becomes taxable in India. This includes foreign mutual funds, overseas property income, and pension withdrawals from abroad. But your Indian mutual funds? The tax treatment remains unchanged.
Use Belong's Residential Status Calculator to determine your exact status based on your travel history and income.
The Four Things That Must Change
When you return to India, four administrative updates are mandatory for your mutual fund investments:
1. Update Your Residential Status with KYC Agency
Your KYC (Know Your Customer) details are centralized across all mutual fund houses. Once you update your status with one AMC, it reflects across all your investments.
You'll need to submit:
- PAN card copy
- Passport copy
- New Indian address proof (Aadhaar, utility bill, or bank statement)
- Self-declaration of changed residential status
Most AMCs now allow online KYC updates. Check if your fund house offers this facility. Platforms like Kuvera, Zerodha Coin, or Groww can help update KYC digitally.
2. Convert Your NRE/NRO Account to Resident Savings Account
FEMA doesn't allow residents to hold NRI accounts. You must convert your NRE or NRO account to a regular resident savings account within a reasonable period.
However, there's a smart alternative: Resident Foreign Currency (RFC) account.
If you convert your NRE balance to RFC, you keep funds in foreign currency (USD, EUR, GBP), maintain repatriation benefits, and avoid immediate conversion to rupees. This is especially useful if you expect the rupee to depreciate or have large foreign currency obligations.
For your mutual funds, update the linked bank account from NRO/NRE to your new resident account. Redemption proceeds will now credit to this resident account.
3. Update Bank Account Details with AMC
Log into your mutual fund account (through the AMC website or investment platform) and change the linked bank account from NRO/NRE to your resident account.
This is critical. If you redeem mutual funds without updating bank details, the transaction may fail or face compliance issues.
Most platforms allow instant bank account updates. You may need to complete a penny-drop verification (AMC deposits ₹1 to verify account ownership).
4. Update FATCA/CRS Declaration
The Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) require you to declare your tax residency status.
As a returning resident, update your FATCA declaration to reflect "Indian Resident." This ensures compliance and prevents your details from being reported to foreign tax authorities.
👉 Tip: Complete all four updates together in one go. Create a checklist and knock them out over a weekend to avoid missing any step.
How Your Tax Treatment Changes on Mutual Funds
Let's talk about the part that matters most: taxes.
Capital Gains Tax Rates (Identical for NRI, RNOR, ROR)
The tax rates on mutual fund gains are the same whether you're an NRI, RNOR, or regular resident. What changes is TDS (Tax Deducted at Source) rates.
Fund Type | Tax rates (If Purchased Before 31 March 2023) | Tax Rates (If Purchased After 31 March 2023) | |||
|---|---|---|---|---|---|
Holding Period | STCG | LTCG | STCG | LTCG | |
Equity Mutual Fund | 12 months | 20.00% | 12.50% | 20% | 12.50% |
Debt Fund | 24 months | Slab rate | 12.50% | Slab rate | Slab rate |
*Considering capital gains On or after July 23, 2024
For Hybrid Funds:
Taxation of Hybrid and Other Mutual Funds
Tax Rates (If Purchased Before 31 March 2023) | Tax Rates (If Purchased After 31 March 2023) | ||
|---|---|---|---|
Fund Type | Holding Period for LTCG | STCG | LTCG |
Aggressive Hybrid Funds \<br/> (Equity: 65%-80%) | 12 months | 20% | 12.5% |
Balanced Hybrid Funds \<br/> (Equity: 40%-60%) | 24 months | Slab rate | 12.5% |
Conservative Hybrid Funds \<br/> (Equity: 10%-25%) | 24 months | Slab rate | 12.5% |
Other Funds \<br/> (Equity: > 35% to \< 65%) | 24 months | Slab rate | 12.5% |
Other Funds \<br/> (Equity: ≤ 35%) | 24 months | Slab rate | 12.5% |
Source ( Bajaj Finserv Clear Tax Economic Times )
TDS Changes When You Become Resident
As an NRI, TDS was deducted at higher rates: 12.5% on equity LTCG and 20% on equity STCG. As a resident, TDS is not automatically deducted on capital gains below the basic exemption limit.
If your total income (including capital gains) stays below ₹4 lakh, you pay zero tax. If it exceeds that, you pay tax per your slab but TDS isn't auto-deducted-you declare it while filing returns.
This can actually improve your cash flow. As an NRI, TDS was immediately deducted, and you had to claim refunds. As a resident, you can time your redemptions to manage tax liability better.
What About Dividends?
Dividend income from mutual funds is added to your taxable income and taxed at your slab rate-whether you're NRI or resident.
No change here. The fund house no longer deducts DDT (Dividend Distribution Tax) since Budget 2020. You receive full dividend and declare it in your ITR.
How RNOR Status Helps (for Foreign Investments)
While RNOR doesn't change taxation on Indian mutual funds, it provides relief on foreign assets.
If you hold US stocks, foreign mutual funds, or overseas property, capital gains from these remain tax-free in India during RNOR years. This is a significant advantage if you're gradually liquidating overseas portfolios.
But remember: once you become ROR, these foreign gains become taxable in India. Plan your asset sales strategically during RNOR years.
Can You Continue SIPs After Returning to India?
Yes, absolutely. Your existing SIPs continue without interruption-but only after you update your bank account.
Here's how it works:
Before Bank Account Update: Your SIP mandate is linked to your NRO or NRE account. When you return and don't update details, the SIP auto-debit may fail because FEMA prohibits residents from maintaining NRI accounts.
After Bank Account Update: Once you link your new resident savings account, SIPs resume smoothly. No need to cancel and restart. Just update the bank mandate.
Some platforms (like Zerodha Coin, Kuvera, Groww) allow you to update SIP bank details online within minutes. Others may require a physical mandate form.
Starting New SIPs as a Resident
As a resident, you gain access to mutual funds that were previously restricted for NRIs. US and Canada-based NRIs face restrictions on several AMCs due to FATCA compliance. Once you're a resident, these restrictions vanish.
You can also start SIPs in:
- ELSS (tax-saving funds under Section 80C)
- Any AMC without country restrictions
- Index funds and passive funds without documentation hassles
👉 Tip: If you have SIPs from your NRI days, don't cancel them just to restart. Simply update bank details and continue. This preserves your SIP date and rupee-cost averaging history.
Repatriation Rules Change Significantly
As an NRI, repatriation was straightforward. Investments made through NRE accounts were fully repatriable without limits. Investments through NRO accounts had a repatriation limit of $1 million per financial year.
What Changes as a Resident?
Once you become a resident, the concept of "repatriation" no longer applies in the same way. You're now a resident of India, so there are no legal restrictions on moving money abroad-but you must comply with LRS (Liberalised Remittance Scheme) rules.
LRS Limits for Residents: You can remit up to $250,000 per financial year for any permissible current or capital account transaction. This includes:
- Investing abroad
- Buying foreign property
- Paying for education or medical treatment
- Gifting to relatives overseas
For Mutual Fund Redemptions: When you redeem mutual funds as a resident, the proceeds credit to your resident savings account in rupees. If you want to send this money abroad, it counts toward your LRS limit.
Banks will require:
- Declaration Form A2
- Purpose code for the remittance
- PAN card and proof of source of funds (mutual fund redemption statement)
What If You Converted to RFC Account?
If you wisely moved your NRE balance to RFC, you can redeem mutual funds to your RFC account (but this requires coordination with the AMC). RFC balances are freely repatriable without LRS limits, and you preserve foreign currency.
However, most AMCs prefer linking mutual funds to rupee accounts. Check with your fund house about RFC compatibility.
Timing Your Return to Maximize RNOR Benefits
If you have control over your return date, strategic timing can save significant tax.
Understanding the 182-Day Rule
You become a resident for tax purposes if you stay in India for 182 days or more in a financial year. Financial years run from April 1 to March 31.
Example: If you return to India on October 1, 2025, you'll be in India for only 182 days (Oct-Mar) in FY 2025-26. You'll immediately qualify as RNOR for that year.
But if you return on April 1, 2025, you're in India for the full 365 days in FY 2025-26-still RNOR, but you've "used up" one RNOR year.
Maximizing RNOR Duration
Return mid-year (July-September) to extend RNOR status. This way:
- FY 2025-26: RNOR (first partial year)
- FY 2026-27: RNOR (full year)
- FY 2027-28: RNOR (full year)
- FY 2028-29: Possibly RNOR if you meet criteria
That's up to 3.5 years of RNOR benefits instead of 2 years.
Also Read - Residential Status Under Section 6 Of Income Tax Act
Redeem Foreign Assets During RNOR Years
If you hold foreign stocks, overseas mutual funds, or property abroad, sell them during your RNOR years to avoid capital gains tax in India. RNOR status exempts foreign capital gains.
For your Indian mutual funds? The tax is the same whether you redeem as NRI, RNOR, or ROR. No tax optimization is possible by timing redemptions.
But if you're planning to reinvest, do it during RNOR years to lock in tax-free foreign income into new Indian investments.
Common Mistakes NRIs Make When Returning
I've seen these mistakes cost clients thousands in avoidable taxes or create compliance headaches:
Mistake 1: Not Updating Residential Status on Time
Many NRIs return to India and delay informing their AMC for months-sometimes years. RBI mandates that you update your status within a "reasonable period", typically interpreted as 3-6 months.
Delaying creates issues:
- Redemptions may be blocked
- Wrong TDS may be deducted
- Compliance notices from fund house or bank
Mistake 2: Closing NRE/NRO Accounts Too Quickly
Some NRIs immediately close their NRO/NRE accounts upon return. This creates a problem if your mutual fund redemptions are still linked to those accounts.
Always update mutual fund bank details first, verify the new account is active, then close old NRI accounts.
Mistake 3: Assuming All Foreign Income is Tax-Free Forever
RNOR status is temporary. Once you transition to ROR, your global income becomes taxable in India. If you continue receiving foreign income (rental, pension, dividends), you must declare and pay tax as ROR.
Many NRIs forget to track when they transition from RNOR to ROR. Use Belong's Residential Status Calculator annually to check your status.
Mistake 4: Not Claiming DTAA Benefits
If you're taxed on the same income in two countries (e.g., US pension taxed in the US and India), you can claim relief under DTAA (Double Taxation Avoidance Agreement) by filing Form 67 with your ITR.
Many NRIs miss this and end up paying tax twice.
Mistake 5: Ignoring Form 15CA/15CB for Large Remittances
If you want to remit large amounts abroad (over ₹5 lakh), you may need to file Form 15CA and 15CB. These forms ensure proper tax compliance for foreign remittances.
Redemption proceeds from mutual funds don't automatically qualify for exemption-especially if you haven't declared them in your ITR.
Step-by-Step Action Checklist
Follow this sequence when you return to India:
Before You Return:
- Download statements of all mutual fund holdings
- Note down folio numbers, AMC contacts, and current NAVs
- Ensure PAN card is active and linked to Aadhaar
Within First Month:
- Open a resident savings account at your preferred bank
- If you want foreign currency flexibility, open an RFC account alongside
- Submit account conversion request to your current NRE/NRO bank
- Update KYC with one mutual fund house or through CAMS/Karvy
Within Three Months:
- Link new resident bank account to all mutual fund folios
- Update SIP mandates to new bank account
- Close old NRI accounts after confirming all linkages are updated
- File FATCA declaration with AMC
At Year-End (March 31):
- Verify your residential status (NRI/RNOR/ROR) using Belong's calculator
- Gather mutual fund statements for ITR filing
- Check if any TDS was deducted on redemptions
- File ITR by July 31, declaring capital gains and claiming DTAA if applicable
👉 Tip: Keep a dedicated folder (digital or physical) for all documents related to status change. You'll need them for ITR filing, bank queries, and future reference.
Moving Forward with Confidence
Returning to India doesn't mean disrupting your investment strategy. Your mutual funds stay with you, your SIPs continue, and your financial goals remain on track.
The key is updating your status promptly, understanding how RNOR benefits work, and planning redemptions strategically. If you're returning after several years abroad, you likely qualify for 2-3 years of RNOR status-use this window to liquidate foreign assets tax-free while keeping your Indian mutual funds growing.
At Belong, we've built tools and community support specifically for NRIs navigating these transitions. Our NRI FD Comparison Tool helps you find safe, high-return deposit options in GIFT City with tax-free interest. Our Residential Status Calculator clarifies your exact tax status every financial year.
Ready to return to India without financial confusion?
Join our WhatsApp community where over 4,000 NRIs and returning Indians share real experiences, ask tax questions, and get guidance from financial experts: Join Belong's WhatsApp Community
Download the Belong app to explore tax-free USD fixed deposits in GIFT City, compare NRI FD rates across 15+ banks, and access tools built specifically for global Indians: Download Belong App
Your mutual funds are waiting for you back home. Update your status, understand your tax benefits, and continue building wealth in India-this time as a resident, but with all the knowledge you gained abroad.
Sources:
- ICICI Bank NRI Banking: NRIs Returning to India - Essential Financial Guide
- DBS Treasures: NRI Status Explained
- Arthgyaan: RNOR Tax Status India Rules
- Bajaj Finserv: Taxation of Mutual Funds for NRI in India
- HDFC Bank: Financial Steps for NRI Returning to India
