Can NRIs hold a demat account in India?

In India, both residents and non-residents can avail demat facilities to trade in shares. However, if a Non-Resident Indian (NRI) wants to open a demat account, they have to follow the rules of the Foreign Exchange Management Act (FEMA).

Aug 07, 2019 11:08 IST India Infoline News Service

Stock-Market1
A depository is an organization where the securities of an investor are held in electronic form, at the request of the investor through the medium of a Depository Participant.
 
A Depository Participant (DP) is an agent of the depository and is authorized to offer depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. can become DP with a depository.
 
Demat stands for dematerialization. Depository company maintains demat accounts. Demat account is a special holding that stores shares in an electronic format. Having a demat account means there is no need for physical share certificates. An investor can hold a demat account with the depository company and trade in the stock market.
 
A demat account is just like any other bank account; it can also have joint holders who can be citizens of India irrespective of the resident status.

In India, both residents and non-residents can avail demat facilities to trade in shares. However, if a Non-Resident Indian (NRI) wants to open a demat account, they have to follow the rules of the Foreign Exchange Management Act (FEMA). NRIs can open both Repatriable and Non- Repatriable demat accounts. 

An NRI, for trading in secondary markets can operate demat account only post seeking Portfolio Investment Scheme (PIS) licences from designated banks to make investments in India.

As per the rules of the Reserve Bank of India (RBI), an NRI can only hold up to 5% of paid-up capital in an Indian company. An NRI can invest in Initial Public Offers (IPOs) on a repatriable basis by using NRE demat and funds in their Non-Resident External (NRE) bank account. If the NRI invests on non-repatriable basis, then the Non-Resident Ordinary Rupee (NRO) account and NRO demat will be used.

However, if a person has a demat account before gaining the status of NRI, they can convert it into the NRO category to trade after leaving the country or open a new account. Either way, shares previously owned will be transferred to the new NRO holding account.

Documents required for an NRI to open a demat account:
  1. Duly filled demat application form
  2. Copy of passport
  3. Copy of PAN card
  4. Copy of Visa
  5. Overseas address proof, like latest copies of utility bills, or rental/lease agreement, or sale deed
  6. Passport size photograph
  7. FEMA declaration
  8. Canceled check leaf of NRE/NRO account
All these documents should be attested at the Notary, Banker or Indian Embassy of the country where the NRI resides.

Benefits of a demat account:
  1. An NRI can make investments in the Indian share market very quickly from any part of the world. The transactions immediately reflect in the demat account.
  2. The physical documentation process of the transactions will reduce.
  3. The transactions happen quickly and efficiently.
  4. There is minimal risk of forgery, loss of physical documents, late delivery, and other problems.
  5. The demat account can even hold a minimum amount of one share.

If they simply follow these steps, it would be quite effortless for NRIs to open a demat account.

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