If you are a green card holder or a US citizen and investing abroad (7 countries initially) and about 130 countries in 2 years time..well the data is going to your IRS. This means even if you have unintentionally or by mistake not declared some income / asset in your home country, you could be in trouble.

Typically in India a single mother with a son abroad holds her bank fixed deposits, mutual funds, etc. jointly with her son/ daughter. Such investments may be interpreted by the US authorities differently, so please ask your CPA about such investments.

One unintended outcome of this of course is that most Indian mutual funds are not keen at all to allow the NRI from US to invest. It is too expensive and too much of a bother to accept money from NRIs from US and Canada. Not worth it.

IRS Commissioner John Koskinen said the agreement “is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements.” FATCA is an “important tool against offshore tax evasion, and this is a significant step in the process.” He said this in an interview to an advisor magazine in the USA.

Banks are very worried about Fatca and the US is capable of levying such huge fines that it might become impossible for banks to operate there. So an ICICI bank or a Hdfc bank will be extra careful before they deal with you. Similarly funds with a majority US holding – like Franklin Templeton may be more strict while implementing this. Hdfc mutual fund is perhaps not even accepting application forms from American investors – even if they are NRIs. I am not sure, and I have personally not verified this.

So what is the solution?

Frankly the law is just emerging. Go to your CPA and seek the following clarifications:

what happens to investments already made in say the growth option?

if you are a second holder with your parent (the money belongs to your parent, surely)

if you are named a nominee in a will DO YOU HAVE to declare anything now?

if you already have investments and the fund house declares dividends what should u do?

if you sell it off now how will the capital gains be taxed in US (in India it is tax free.

…make a start !!

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  1. What happens if we are investing in Growth mutual funds for the past 2 years and we happen to travel to US or UK for a short term trip of 2-3 yrs, i guess that will be categorized as NRI right? I mean the bank account number will be changed to NRI account, does that block me from continuing my investments in mutual funds? Please clarify.

  2. A CA is reading nursery rhymes to his daughter.
    When she is finished, he answers her doubt:

    “No… When Little Bo Peep lost her sheep it is not tax deductible — but I you proved you are my daughter”

  3. @Rahul this is applicable if you travel to US. Cleanest way to do is sell your mf investment before travelling to US, if you plan to stay there for 2-3 years.

  4. IRS doesn’t care about residency status – it doesn’t care if you have green card, or what passport you have. FATCA is applicable to any resident tax person meaning any person who stays longer than 183 days in the US.

  5. Dear Sir,

    Thank you for such a wonderful blog and regular posting!

    I am an NRI from almost last 9 years and due to carelessness didn’t change my status from RI to NRI. I have started investing in equity mutual fund just last year, after reading your blog. I am doing equity mutual fund SIPs through my saving bank account. Now I want to change my status from RI to NRI ( I have NRE bank account also).

    Simultaneously I have plan to convert my FDs to Equity mutual fund

    Kindly advice me how to go ahead? Also I will be grateful if you write more about NRI investments so that people like me will be benefited.

  6. If you’re a US resident for tax purposes, then do not look at mutual funds. PFICs are really badly looked at from the IRS’s perspective.

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