Should I invest in debt funds as I am a NRI

If you are investing in liquid funds for meeting your emergency needs then it is fine. However, if you plan to invest in debt funds from the perspective of asset allocation or just to earn better than FD returns, then do note that for NRIs, tax is deducted at source from capital gains arising out of short term gains and for long term, capital gains @20% is calculated after indexation. For debt funds long term means holding period of more than 3 years.

Therefore, to avoid tax and yet enjoy the benefit of debt returns, we suggest you to invest in balanced funds. Balanced funds invest around 35% in debt instruments and rest in equities. Long term capital gains (more than 365 days holding) arising out of balanced funds are totally tax free. Dividends received from balanced funds are also tax free.

For example - you want to invest 30-40% of your total investments in debt funds and rest in equity funds. instead of investing in two separate category of funds, invest in balanced funds as they invest in both - debt and equity, and yet provide the taxation of equities.

Hope the above helps! Thanks for writing to us.