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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.

1413 views  13 Mar 2018

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:

  • IPO
  • Mutual funds
  • Secondary market transaction: Trades in SEBI registered stock exchanges in India
  • Portfolio management services (PMS)
  • Derivative trading: Futures and Options
  • Bonds
  • 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