How can NRIs invest in Indian stock market?

A Non-Resident Indian (NRI) can invest in the Indian stock market as per the rules set by the Foreign Exchange Management Act (FEMA).

Jun 06, 2018 02:06 IST India Infoline News Service

In the recent years, the Indian stock market has attracted many NRI investors. A Non-Resident Indian (NRI) can invest in the Indian stock market as per the rules set by the Foreign Exchange Management Act (FEMA). 
Who is an NRI?
According to FEMA, “an NRI is a person resident outside India who is either a citizen of India or a person of Indian origin (PIO)".
As per taxation norms, an NRI is a person who does not satisfy these two conditions:
  1. If a person is in India for 182 days or more during the financial year
  2. If a person is in India for a minimum of 365 days during the previous four years that year and at least 60 days in that year.

An NRI can invest in the Indian stock market by purchasing the shares through the Portfolio Investment Scheme (PIS). This PIS scheme is a part of the Reserve Bank of India that enables NRIs to acquire shares or convertible debentures from the stock market through a bank account with a nominated branch.

According to the latest guidelines, this PIS scheme is not required for NRO (Non-Resident Ordinary) as they will be treated as investments by residents.
Procedure to open a PIS account:
  • The NRI investor has to open an Non-Resident Rupee (NRE) account with a bank approved by the RBI for NRE accounts.
  • The NRI investor has to submit the name of SEBI registered broker when opening an account to the PIS designated bank.
  • The bank will issue a PIS permission letter for the NRE investment, and the NRI has to forward this letter to the broker.
  • Once this process is complete, the NRI can open a demat and trading account for investing with the broker.
Portfolio Investment Scheme account:
The PIS account holds the investment amount of the NRI. The purchases are directly debited from this account, and the sale proceeds are credited to the account. The PIS permission letter is required for opening a demat and trading account.
Trading account:
This account helps the NRI to conduct purchase and sale transactions in the secondary market.
Demat account:
The demat account holds shares in the electronic format. The shares are credited to this account when they are purchased, and after their sale, the shares are debited from the account.
Documents required to open an NRE account:
  1. Self-attested photograph
  2. Copy of Pan card
  3. Canceled bank account cheque
  4. PIS permission letter
  5. Overseas address proof like utility bills, driving license, bank statements, a notarized copy of rental agreement or lease agreement or sale deed of the residential address
  6. Indian address proof, if available
  7. Copy of valid passport with valid visa
  8. The documents should be attested by the Indian Embassy of the country where the NRI resides.
The NRI also has the provision to appoint a mandate holder who will act on behalf of the NRI. The NRI must fill the form of “Appointment of Mandate Holder” and submit it to the bank. Along with the form, the Know Your Customer (KYC) documents and the specimen signature of the mandate holder is a must.
Once the bank approves the mandate holder, they can deposit and issue cheques, make payments and deposits on behalf of the NRI.
The NRI can also make use of online portals to choose their investments. Many online trading gateways are available for NRIs once they complete the necessary registration process.
Points to keep in mind:
  1. Always opt for the delivery based transaction. Intraday transactions are not permitted for NRIs.
  2. It is better to avoid investment in prohibited sectors.
  3. Make sure to reconcile the demat account balance with bank balance.
  4. Banks will levy the following charges for the PIS account like PIS AMC fee, PIS issuance fee, and PIS reporting charges.
By adhering to these simple guidelines and regulations, an NRI can trade in the Indian stock market in a hassle free way and reap the benefits of a growing economy.

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