Tips for NRIs to Invest in Indian Stock Markets

If you are an NRI and want to select the best investment avenues back home, then you can zero in on investing in stocks. Indian stock markets have the third largest investor base globally—after the USA and Japan—with more than 20 million investors. The Foreign Exchange Management Act (FEMA) has stipulated several rules for NRIs to invest in India stock markets via the Portfolio Investment Scheme (PIS). The Reserve Bank of India (RBI) regulates the PIS.

Who is an NRI?

  • For being in the category of an NRI, you have to be a Person of Indian Origin (PIO), or an Indian citizen living abroad.
  • Your stay in India should be more than 60 days, but less than 182 days in a given financial year. Subject to fulfilling this condition, even if your stay in India is 365 days, or more, in the previous four financial years, you will still be regarded as an NRI.
  • You can also have NRI status, if you are deputed to a foreign country for more than six months.

How to invest in Stock Markets through PIS?

As an NRI, you can invest in stock markets after opening a Non-Resident External (NRE) Account with an RBI-approved bank. You can only have a single PIS Account for investing in stock markets.

What is an NRE Account?

  • NRE account is an external and repatriable account. The money which you deposit, as an NRI, in this account will be converted in India Rupees. This means you can deposit money in any currency, and withdraw in India Rupees.
  • Any amount deposited in an NRE Account, including the principal and interest, is completely repatriable.
  • You can open an NRE Account in different formats, like savings, current or recurring deposits.
  • This account is subject to currency fluctuations.

What is the difference between NRE and NRO Accounts? Do NRIs need both accounts to invest in stock markets?

  • A key difference between NRE and NRO Accounts is that the latter does not allow free repatriability.
  • An NRO Account is best suited for NRIs having sources of income in India, like dividends, pension, rental income etc.
  • The government has mandated opening NRO Account as depositing money earned in India in the NRE would result in a tax-free transfer of money outside the country.
  • According to recent government regulations, you don’t require a Non-Resident Ordinary (NRO) Account for investing in stock markets through the PIS. This is because any investment made through an NRO Account will be regarded as an investment by a resident Indian.

What are the steps to be followed after opening an NRE Account?

For investing in Indian stock markets, now you need to follow the steps given below:

  • Step 1: While opening the PIS Account, you have to provide the name of your SEBI-registered broker.
  • Step 2: The bank will issue a PIS permission letter, which has to be forwarded to the broker.
  • Step 3: Now you can open a Demat Account and a Trading Account with the broker.

Importance of PIS Account:

  • Just like a bank account for resident Indians, the PIS Account holds the investment amount of NRIs, and is linked with the Demat Account and Trading Account.
  • For instance, if you purchase any shares through your Trading Account, the requisite cost of purchase will be deducted from the PIS Account, while the number of shares will be credited in your Demat Account.

What are the additional facts that an NRI investor needs to know?

  • You must remember that NRIs cannot engage in intraday trading in stock markets.
  • NRIs can only trade on a delivery basis in stock markets. This rules out Buy Today, Sell Tomorrow (BTST) trading, Sell Today, Buy Tomorrow (STBT) trading and short selling.
  • Though an NRI can acquire shares and convertible debentures of Indian companies via the stock exchanges, there is a ceiling for overall investment. As per RBI regulations, NRIs can invest in only up to 10% of the paid-up capital of an Indian company.
  • An NRI is also barred from investing in some stocks and sectors, as per an RBI mandate.
  • As an NRI, you can’t trade in some stock market instruments, like currency derivatives and commodities.

Conclusion:

Thus, as an NRI, you can invest in Indian stock markets through the RBI-regulated platform of PIS. Before investing in Indian stock markets, you must remember to open an NRI trading account with a trusted financial partner. IIFL’s award-winning NRI financial advisory services provide you with a wide range of investment options along with dedicated relationship managers and a hassle-free online account opening process.

Open Demat Account at IIFL