Investment Routes for NRIs: The Securities and Exchange Board of India (SEBI) has introduced measures to facilitate easier investment for Non-Resident Indians (NRIs) in Indian markets. While NRIs enjoy rights similar to resident Indians in many aspects, they are required to adhere to specific regulatory frameworks due to their non-resident status. SEBI's measures aim to streamline the investment process for NRIs, enabling them to access Indian markets with greater ease while ensuring compliance with regulatory requirements. Here's an overview of how NRIs can trade in Indian stock markets, the ideal investment strategies for NRIs, and the options for Demat and trading accounts.
Investment Routes for NRIs
NRIs can invest in Indian equities through three main avenues:
Mandate Holder: NRIs can appoint a mandate holder to manage their NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts in India. This involves submitting an "Appointment of Mandate Holder" application to their bank, along with necessary documents and the specimen signature of the mandate holder.
Power of Attorney (POA): NRIs may appoint a POA in India for executing and redeeming investments. A POA agreement must be signed on stamp paper and notarised before it can be submitted.
Online Trading: Internet trading has made it easier for NRIs to access Indian markets. Many brokers now offer online trading facilities to NRIs, subject to compliance with all regulatory and KYC guidelines.
Investment Basis: Repatriable or Non-Repatriable
NRIs can invest through NRE accounts (repatriable) or NRO accounts (non-repatriable, beyond the $1 million limit per year). After setting up their bank account, NRIs must obtain a Portfolio Investment Scheme (PINS) approval from the Reserve Bank of India (RBI). This permission letter allows NRIs to trade in Indian equities and open a trading and demat account with a broker.
Steps to Open Trading and Demat Accounts
To open a trading and demat account, NRIs must submit:
- A copy of their PAN card, PINS letter, and FEMA declaration.
- Copies of their Indian passport, foreign passport (if applicable), PIO card, and OCI card. These documents can be notarised by embassy officials.
- Overseas address proof and a canceled bank check from the overseas bank account.
- A declaration specifying which bank account (NRE or NRO) to map for trading and demat purposes, as only one account can be mapped.
- A FATCA declaration as part of the PMLA (Prevention of Money Laundering Act) requirements.
NRI Trading Process
The buying and selling process for NRIs mirrors that of resident Indians, with a few key differences:
- NRIs are prohibited from investing in certain stocks, and violations can result in steep penalties.
- Once NRIs allocate funds to the broker from their NRE or NRO accounts, their trading account is credited.
- The broker sends the contract note to both the NRI and the PINS bank for authorizing debits or credits.
- The PINS bank debits or credits the PINS account accordingly.
Key Considerations for NRI Trading
- Taxation on short-term and long-term equity gains is consistent with that for resident Indians.
- In mutual funds, NRIs receive dividends after tax deductions at source.
- While NRIs can trade equities through NRE or NRO accounts, futures and options trading is only possible through NRO accounts, which are non-repatriable.
- NRIs must obtain a Custodial Participant (CP) code before trading in F&O.
- NRIs can only engage in delivery-based trading, not intraday trading, BTST (Buy Today, Sell Tomorrow), STBT (Sell Today, Buy Tomorrow), or short selling.
- NRIs are permitted to trade in Indian equities and F&O but cannot participate in currency derivatives or commodities.