How NRIs can invest in India
In this episode of Dhan ki Baat, Hiten Jain, NRI Product Head, India Infoline, walks you through the guidelines for NRI investments in the financial markets.
All about NRI Investment in India
A number of non-resident Indians who wish to invest in the country may have many questions on their mind, such as the investment options available to them and the process involved in investing.
To begin with, NRIs can invest in the following products in India:
- Mutual funds
- Secondary market transaction: Trades in SEBI registered stock exchanges in India
- Portfolio management services (PMS)
- Derivative trading: Futures and Options
- Alternative Investment Funds (AIF)
NRIs must have a saving bank account before they start to invest. There are two types of bank accounts NRIs can operate depending upon their income:
- Income from India: Non-Resident Ordinary (NRO) Bank Account
- Income out of India: Non-Resident External (NRE) Bank Account
Both the accounts are savings accounts maintained in Indian Rupees. You can remit your foreign income earned outside India in NRE bank account, which is fully repatriable. Income in India is parked in NRO bank account, which is partially repatriable.
To make direct equity investment by trading on recognised stock exchanges in India, NRIs need to open PIS bank account - a type of saving bank account that will only have secondary market transaction and charges, and TDS applicable.
Why is Portfolio Investment Scheme (PIS) required?
Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, NRIs can acquire shares of Indian companies through the stock exchanges in India. PIS account is basically required by the regulator to monitor the investment limit by NRIs in stock market.
PIS bank account is not required for making investments in mutual funds and applying in IPOs. To start with, NRIs need to open demat and trading account with SEBI registered broker in India.
Following documents are required for opening demat and trading account with SEBI registered broker in India:
- Passport and Visa copy
- PIO/OCI Card in case of foreign passport.
- Foreign Address proof –Valid address proof: driving license/foreign passport/utility bills/bank statement (not more than 2 months)/leave & license agreement/ sale deed
- Indian address proof if required as communication address
- PIS Permission letter (in case of NRE investment)
- Bank account proof
Things to remember before NRIs start trading:
- Always make delivery based transaction.
- Never trade in Banned and Caution scrip.
- NRIs can purchase up to a maximum of 5% of the paid up capital of a company.
- NRIs can have PIS bank account with only one designated bank.
An important point to note is that NRIs should not invest in prohibited sectors as per regulatory guidelines. These are as following:
- Lottery business including government/ private lottery, online lotteries.
- Gambling and betting, including casinos.
- Chit funds (except for investments made by NRIs and OCIs on a non-repatriation basis).
- Nidhi Company.
- Trading in Transferable Development Rights (TDRs).
- Real estate business or construction of farm houses.
- Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. The prohibition is on the manufacturing of the products mentioned and foreign investments in other activities related to these products, including wholesale cash and carry, retail trading etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).
- Activities/sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations
- Foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.
Complete details available at:https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200
Mr. Hiten Jain is the NRI Product Head at India Infoline Ltd. He has 10 years of rich experience in Product and Operations. Prior to joining IIFL, he worked as NRI Product Manager at Axis Bank and handled multiple operations roles and responsibilities at ICICI Bank. He studied BE from K.J. Somaiya College of Engineering, Mumbai
Ask an Expert
Who is a non-resident Indian (NRI)?
Non-Resident Indian (NRI) means a "person resident outside India" who is a citizen of India or is a person of Indian origin as per FEMA regulations.
Who is a 'person resident outside India'?
Under the Foreign Exchange Management Act, 1999 (FEMA), a person who is NOT a 'person resident in India', as defined under Section 2 (v) of the Act is considered as a 'person resident
outside India'. The most important change in definition (since FERA 1973) is that the citizenship of a person no longer has a bearing in determination of residential status.
Who is a 'person of Indian origin'?
'Person of Indian Origin' (PIO) means a citizen of any country other than Bangladesh or Pakistan, if he at any time held Indian passport; or he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or the person is a spouse of an Indian citizen or a person referred to in sub-clause [a] or [b].
Investment by PIO in Indian Securities is treated the same as the investment by non-resident Indians and requires same approvals and enjoys the same exemptions.
What is a Portfolio Investment Scheme (PIS)?
Portfolio Investment Scheme (PIS) is a scheme of Reserve Bank of India under which Non
Resident Indian (NRIs) can purchase/sell securities permitted by RBI from time to time of Indian
companies on Stock Exchanges under Portfolio Investment Scheme.
For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.
In which bank accounts I can open PIS account?
What are the different types of accounts permitted to be maintained by NRI?
Two types of rupee accounts viz. Non Resident (external) Rupee Accounts (NRE) and Ordinary Rupee Accounts (NRO) are permitted to be maintained by NRIs. Funds in NRE account are repatriable.
What are the documents required to open NRI trading account?
Indian address proof (not required in case of NRE)
Foreign address proof (mandatory both cases)
PIS Letter (issued by RBI)
Bank account statement/ passbook bank proof should indicate NRE/NRO saving a/c bank details
If NRE or NRO is not mentioned (pre-printed) on cheque, then bank verification letter is required.
All the photocopy of the KYC document should be attested by the any of the entities: notary public, any court, magistrate, judge, local banker, Indian embassy, Consulate General of the country where NRI is residing.
Under which segments NRI can invest in India through a stock exchange?
NRIs can invest under the Portfolio Investment Scheme (buying through the secondary market) and through the Direct Subscription Route (Investments though IPOs). Under below segments customer can invest:
Equity – only cash
Exchange Traded Funds.
Can NRI place Intraday order?
No. NRI's not allowed to do Intraday transaction. They can only trade on delivery basis. Short selling is not allowed.
Can two separate trading accounts namely (NRE & NRO) can be opened by NRI?
Yes. Clients can have two separate trading accounts based on NRE & NRO.
In case a non-resident Indian becomes a resident in India or vice versa, will he/she be required to open a new trading account?
Yes, customer needs to open a new trading account.
In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non-Resident to Resident?
Yes. It is the responsibility of the NRI to inform the change of status to the designated authorized
dealer branch, through which the investor had made the investments in Portfolio Investment
Scheme and the DP with whom he/she has opened the demat account.
Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account.