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.
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:
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.
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).
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 was 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
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.
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.
'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.
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.
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.
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.
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.
No. NRI's not allowed to do Intraday transaction. They can only trade on delivery basis. Short selling is not allowed.
Yes. Clients can have two separate trading accounts based on NRE & NRO.
Yes, customer needs to open a new trading account.
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.