In many ways, non-resident Indians (NRIs) have rights in India like resident Indians. Of course, since they are located abroad, they are required to 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 Indian stock market. Let us also look at the ideal NRI investment in India and also the best NRI demat account and trading accounts.
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 based abroad, they can appoint a mandate holder to handle their NRE / NRO accounts in India. The NRI must give an “Appointment of Mandate Holder” application to the bank with requisite documents and the specimen signature of the mandate holder. This is the first step.
Then the NRI can also appoint a power of attorney (POA) in India for actually executing and redeeming the investments in India. A POA agreement will have to be signed on a stamp paper and notarized before it can be submitted as a mandate for investing.
Thanks to the spread of internet trading, brokers are also permitted to 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 Repatriable or non-Repatriable basis
The NRI can invest in India through the NRE account or the NRO account. While the NRE account is an external account and hence Repatriable, the NRO account is a resident account and hence the funds are non-Repatriable beyond the limit of $1 million per year. Once bank account is in place, the next step is to get the PINS approval from RBI.
What is the PINS approval from RBI?
Once the bank account opening formalities are done, the next step for the NRI is to open a PINS account. The Portfolio Investment Scheme (PINS) is a permission letter given by the RBI to trade in Indian equities and the NRI can open trading account and demat account with a broker. This PINS letter will be managed by the bank where the NRI’s bank account is located. Once the requisite documents are submitted and the PINS letter is obtained, the NRI is ready to open the trading cum demat account with a broker.
Documentation for opening 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 PINS letter and the FEMA declaration. The FEMA Declaration is important for verifying source of funds.
NRI will be required to submit copies of Indian passport, foreign passport copy (if any), PIO card, OCI card etc. Photocopies can be notarized by the embassy officials.
The NRI will have to submit an overseas address proof as well as a cancelled bank cheque of the overseas bank account for the bank records.
In case, the NRI has an NRO account and an NRE account, they it must be specified which bank account must be mapped for trading and demat. Only 1 account can be mapped to one trading and demat account.
As part of the PMLA, the NRI will also be required to sign and execute a FATCA declaration before the trading and demat account can be opened.
Actual trading process for the NRI
The actual buying and selling process is the same for the resident Indians and for 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. Once the NRI allocates funds to the broker from the NRE or NRO account, the trading account gets credited. When the actual transaction is done, the broker sends the contract note simultaneously to the NRI and to the PINS bank for authorizing debits. The PINS bank will then debit or credit the PINS account of the NRI accordingly.
Some key aspects that NRIs must remember while trading Indian equities
Taxation of short-term and long-term gains of equities will b the same as for resident Indians. However, in case of investments in mutual funds, the NRI will get the dividend only after the TDS is deducted.
While trading in equities can be down through NRE or NRO accounts, F&O trading can be done by NRIs only through NRO accounts that are non-Repatriable. Also, NRIs will have to get a Custodial Participant (CP) code before trading in F&O.
NRIs can only trade on delivery basis in Indian equities. So, intraday trading, BTST trading, STBT trading and even short selling is not open to NRIs.
Currently, NRIs have been permitted to trade in Indian equities and F&O but they are barred from trading in currency derivatives and in commodities.
It is important to take time zone differences into consideration while trading. The Indian stock market operates according to Indian Standard Time (IST), so this might impact the timing of trades for NRIs located in different time zones.
Conclusion
Non-resident Indians (NRIs) have ample opportunities to participate in India's vibrant economy by trading in the Indian stock markets. However, NRIs must be cautious as they venture into the world of Indian equities. By possessing sound knowledge, exercising caution, and adopting a strategic mind-set, NRIs can effectively manage the complexities and capitalize on the abundant prospects found in the Indian stock markets.
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As an enthusiast and expert in the field of investment, particularly focusing on non-resident Indians (NRIs) and their engagement in the Indian stock market, my knowledge and experience span various facets of the subject. Having closely followed the evolution of regulations and market dynamics, I can provide a comprehensive overview of the concepts introduced in the article.
NRIs' Rights and Investment Opportunities in India:
1. Investment Avenues for NRIs:
NRIs, despite being located abroad, enjoy rights similar to resident Indians in the Indian stock market. While compliance procedures may be more regulated, investing in the market is entirely feasible. The article discusses three primary ways through which NRIs can manage their investments in Indian equities.
2. Appointment of Mandate Holder and Power of Attorney:
NRIs can appoint a mandate holder to manage their NRE/NRO accounts and execute investments. Additionally, a Power of Attorney (POA) can be appointed in India for handling investment execution and redemption. These processes involve specific applications, documents, and legal formalities.
3. Online Trading Facilities:
Internet trading has become a convenient option for NRIs, with brokers offering online trading facilities, provided all necessary compliance and Know Your Customer (KYC) guidelines are met.
4. Repatriable and Non-Repatriable Investments:
NRIs can invest in India through either the NRE or NRO account. The NRE account is external and repatriable, while the NRO account is a resident account, and funds are non-repatriable beyond a certain limit.
5. Portfolio Investment Scheme (PINS):
The Portfolio Investment Scheme (PINS) approval from the Reserve Bank of India (RBI) is crucial for NRIs to trade in Indian equities. This involves opening a PINS account, and the PINS letter is managed by the bank where the NRI's account is located.
6. Documentation Requirements:
The article outlines the documentation required for opening a trading cum demat account, including PAN card, PINS letter, FEMA declaration, passport copies, overseas address proof, and bank details.
7. Actual Trading Process:
NRIs follow the same buying and selling process as resident Indians. However, certain restrictions apply, and NRIs are prohibited from investing in specific stocks. The article details the trading process, including the role of the PINS bank in authorizing debits.
8. Taxation and Trading Limitations:
NRIs must be aware of taxation on short-term and long-term gains, similar to resident Indians. However, there are restrictions on certain types of trading, such as intraday, BTST, STBT, and short selling, which are not open to NRIs.
9. Other Considerations:
NRIs are allowed to trade in equities and F&O but are prohibited from trading in currency derivatives and commodities. Time zone differences should also be considered, as the Indian stock market operates on Indian Standard Time (IST).
Conclusion:
In conclusion, NRIs have significant opportunities in the Indian stock market, but careful consideration of regulations, documentation, taxation, and trading limitations is essential. By adhering to the outlined procedures and maintaining a strategic approach, NRIs can navigate the complexities and make informed investment decisions in India's dynamic economic landscape.
