Can NRIs hold a Demat Account in India?

Over the past decade, stock trading in India has picked up quite remarkably. Investors are venturing into the equity markets through various channels like direct equity, mutual fund houses and ULIPs. To take the direct equity route, investors must possess a demat account. Many investors remain unaware of this fact until they decide to take their first steps towards equity investing. But now, with many stockbrokers and DPs offering the option to open a demat account online, it has become quite easy to apply for one.

But what about Non-Resident Indians (NRIs)? Can NRIs hold a demat account in India?

What is a demat account?

Demat is essentially a shortened form of dematerialization. A demat account holds physical certificates of your shares, bonds, ETFs and other financial instruments in the electronic format. When you open a demat account, it eliminates the need for physical share certificates. In other words, a demat account is like a bank account for your shares and other financial instruments.

When you buy or convert shares from the physical to the electronic form, the demat account is credited. Conversely, when the shares/assets in the demat account are sold, the account is debited. Demat accounts are maintained with depositories like the NSDL or the CDSL. They are administered by Depository Participants (DPs).

Who is a depository participant?

A depository is an organization or an entity that administers demat accounts, where the securities held by investors like you are held in electronic form. Depository Participants (DPs) are agents of depositories, and they are authorized to offer depository services to traders and investors. As per the guidelines of SEBI, financial institutions, banks, stockbrokers, and custodians can become DPs.

Can NRIs hold a demat account in India?

The short answer is yes. NRIs can hold Demat accounts in India. To elaborate further, SEBI regulations dictate that for NRIs as well, it’s mandatory to hold Demat accounts to trade in the stock markets. So, with regards to India, non-residents can also open Demat accounts to trade in the financial markets.

So, what’s the point of difference? For NRIs who wish to open Demat accounts in India, they must follow the rules specified in the Foreign Exchange Management Act (FEMA). Under those rules, NRIs can open repatriable and non-repatriable Demat accounts for trading or investing in the markets.

A repatriable Demat account is essentially linked with a Non-Resident External (NRE) account, and all the proceeds from the sale of securities and the gains from investments therein can be transferred/repatriated abroad. A non-repatriable Demat account is linked with a Non-Resident Ordinary (NRO) bank account. Since these accounts are non-repatriable, there are restrictions on transferring money from these accounts to a foreign country.

Other rules regarding the opening and usage of an NRI’s Demat account

There are also some other rules and regulations that NRIs must keep in mind before opening a Demat account in India and using it to trade or invest in the markets.

  • To trade in the secondary markets, NRIs can use Demat accounts only after seeking Portfolio Investment Scheme (PIS) licenses from designated banks, so they can make investments in India.
  • Additionally, the rules of the Reserve Bank of India (RBI) state that an NRI can hold up to 5% of paid-up capital in an Indian company.
  • A non-resident can invest in Initial Public Offers (IPOs) on a repatriable basis by using NRE/repatriable Demat accounts. For investments made on a non-repatriable basis, a Non-Resident Ordinary (NRO) account and a non-repatriable Demat must be used.
  • If you already have a Demat account before becoming an NRI, you can convert your Demat account to the NRO category to continue trading even after you leave the country. Alternatively, you could also choose to open a new Demat account.

Conclusion

The bottom line is that NRIs can open Demat accounts in India. There are just a few additional regulations that NRIs need to follow. Now, with many DPs offering the facility to open a Demat account online, it’s easy for NRIs to get started with trading no matter where they’re located.