In many ways, non-resident Indians (NRIs) have rights in India like resident Indians. Of course, since they are located abroad, they must go through a more regulated framework and greater compliance, but investing in the markets is perfectly possible for NRIs, too. Let us look at how NRI can trade in the Indian stock market. Let us also look at the ideal NRI investment in India, NRI Investment in Equity, and also the best NRI demat account and trading accounts.
What are the three ways NRIs can invest in Indian equities?
As a non-resident Indian, there are three ways to route and manage your investments in the Indian stock markets.
- Since the NRI will be abroad, they can appoint a mandate holder to handle their NRE / NRO accounts in India. The NRI must give the bank an “Appointment of Mandate Holder” application with the requisite documents and the specimen signature of the mandate holder. This is the first step.
- NRI can also appoint a power of attorney (POA) in India to execute and redeem the investments in India. A POA agreement must be signed on stamp paper and notarized before it can be submitted as a mandate for investment.
- Thanks to the spread of internet trading, brokers can also offer online trading facilities for their NRI clients, subject to meeting all the required compliance and KYC guidelines. Most brokers are offering this facility to NRIs now.
NRIs can invest on a Repatriable or non-repatriable basis
The NRI can invest in India through the NRE or NRO accounts. While the NRE account is an external account and hence Repatriable, the NRO account is a resident account. Hence, the funds are non-repatriable beyond the limit of $1 million per year. Once the bank account is in place, the next step is to get the PIS approval from RBI.
What is the PIS approval from RBI?
Once the bank account opening formalities are done, the next step for the NRI is to open a PIS account. The Portfolio Investment Scheme (PIS) is a permission letter the RBI gave to trade in Indian equities, and the NRI can open trading and demat accounts with a broker. This PIS letter will be managed by the bank where the NRI’s account is located. Once the requisite documents are submitted and the PIS letter is obtained, the NRI can open the trading cum demat account with a broker.
What are the documents required for opening a trading cum demat account?
For opening the trading cum demat account, the NRI is required to submit the following key documents. The broker can process the application form for trading and demat only after these documents are submitted and verified.
- Copy of PAN card along with the PIS letter and the FEMA declaration. The FEMA Declaration is essential for verifying the source of funds.
- NRI will be required to submit copies of Indian passports, foreign passport copies (if any), PIO cards, OCI cards, etc. The embassy officials can notarize photocopies.
- The NRI will have to submit an overseas address proof and a canceled bank cheque of the overseas bank account for the bank records.
- If the NRI has NRO and NRE accounts, they must specify which bank account must be mapped for trading and demat. Only one account can be mapped to one trading and demat account.
- As part of the PMLA, the NRI must also sign and execute a FATCA declaration before opening the trading and demat account.
What is the trading process for NRIs?
The buying and selling process is the same for the resident Indians and NRIs. However, there are a few things to remember. For example, NRIs are barred from investing in certain stocks, and the NRI must check with the broker on this front. Any violation of this negative list will attract steep penalties. The trading account gets credited once the NRI allocates funds to the broker from the NRE or NRO account. When the actual transaction is done, the broker sends the contract note simultaneously to the NRI and the PIS bank for authorizing debits. The PIS bank will then debit or credit the PIS account of the NRI accordingly.
Some key aspects that NRIs must remember while trading Indian equities
While trading in equities can be done through NRE or NRO accounts, F&O trading can be done by NRIs only through non-repatriable NRO accounts. Also, NRIs must get a Custodial Participant (CP) code before trading in F&O. NRIs can only trade on a delivery basis in Indian equities. So, intraday, BTST, STBT, and even short selling are not open to NRIs. Currently, NRIs have been permitted to trade in Indian equities and F&O but are barred from trading in currency derivatives and commodities.