How to Invest in Indian Mutual Funds from USA & Canada (2026): FATCA, PFIC Rules & Compliant AMCs

Why US and Canadian NRIs face extra hurdles

The US Foreign Account Tax Compliance Act (FATCA) requires Indian financial institutions to report accounts of US persons to the IRS through Indian authorities. Several Indian asset management companies (AMCs) decided the paperwork was not worth it and stopped accepting money from investors resident in the US and Canada. Others continue but require extra declarations, a physical presence in India when investing, or offline paperwork.

The bigger issue for US taxpayers is not FATCA but the Passive Foreign Investment Company (PFIC) regime. Indian mutual funds are almost always PFICs under US tax law, and PFIC taxation can turn a good investment into a poor one after tax.

How PFIC taxation works

Under the default excess distribution method, any gain on selling a PFIC, and any distribution above 125% of the average of the previous three years, is spread over your holding period. The portion allocated to earlier years is taxed at the highest ordinary income rate for each year (currently 37%), plus an interest charge as if the tax had been paid late. Capital gains rates do not apply, and losses cannot offset other gains.

• Mark-to-market election: you pay ordinary income tax each year on the increase in value, even if you do not sell. Losses are only deductible to the extent of earlier gains.
• Qualified Electing Fund (QEF) election: you pay tax on your share of the fund's earnings each year, keeping capital gains character, but Indian AMCs rarely provide the required annual information statement.
• Form 8621 must be filed for each PFIC each year, which adds cost if you hold many funds.
• Holding mutual funds through an Indian retirement product does not remove PFIC treatment.

Indian AMCs that accept US and Canadian investors

Policies change regularly, so always confirm with the AMC before investing. As of late 2026, the following large AMCs are generally reported to accept investments from NRIs resident in the US and Canada, usually with an additional FATCA declaration:

KYC and in-person verification

1. Complete KYC with a KYC Registration Agency using your PAN, passport, overseas address proof and photograph.
2. In-person verification (IPV) can be done by video KYC, at an AMC branch in India, or through attestation by an Indian embassy, overseas bank or notary, depending on the AMC.
3. Submit a FATCA/CRS declaration listing your US or Canadian tax identification number.
4. Link your NRE (for repatriable investments) or NRO (non-repatriable) bank account; payments must come from these accounts.
5. Expect TDS on redemption for capital gains: 12.5% on long-term equity gains above ₹1.25 lakh and 20% on short-term, plus surcharge and cess.

Redemptions paid into an NRE account are repatriable if the original investment came from NRE. Gains are subject to TDS in India, and you can usually claim credit for Indian tax on your US or Canadian return.

Alternatives: direct stocks and India ETFs

Because of PFIC, many US NRIs skip Indian mutual funds entirely. Individual shares of Indian companies are not PFICs (operating companies are not passive), so direct stock investing through a Portfolio Investment Scheme (PIS) or Non-PIS demat account avoids the trap.

Canada-specific notes

• Canada does not have a PFIC regime; Indian mutual fund gains are generally taxed as capital gains when realised.
• Report foreign property costing over CAD 100,000 on Form T1135.
• The India–Canada DTAA gives credit for Indian tax deducted on gains.
• Some AMCs still refuse Canadian residents; SBI, ICICI Prudential and Nippon are generally the most accommodating.

Check the offshore investment fund property rules with a Canadian accountant if you hold large positions in non-distributing funds.