An NRI can invest in mutual fund schemes in India through the money lying in the credit of NRE/NRO account or may be through banking channels which are approved by the authority.

All you"ll need to do to invest in mutual fund is by submitting a duly completed application form along with cheques or DD to investor service center.

To invest on mutual funds, it is compulsory to have an NRE bank account. General permission has been granted by the Reserve Bank of India to offer mutual fund, subject to few conditions.

These conditions are:

The investment amount has to be received by inward remittance through normal banking channels or through debit to an NRE Bank account of the investor.
The net amount of the interest or dividend and proceeds of units should be remitted through normal banking channels or be credited to NRE bank account of the investor as mentioned by him / her with a condition of payment of applicable tax.

Tax liability for income received from NRI mutual fund

Section 10 (35) of Income tax Act, 1961 defines that income received from mutual fund investment under section 10 (23D) is exempt from income tax. Therefore all dividends are tax free on NRI mutual fund held by the investor. However any tax that is applicable will be deducted at source.