Considering the boom in the Indian market, many NRIs are heavily investing in India to grow their wealth. There are a host of NRI investment options in India. They can invest in stock markets, mutual funds, FDs, gold and a lot more. While some NRIs are getting the full advantage of their investment in India, due to lack of experience and expert advice, others commit mistakes that complicate things later on. Here are 5 common mistakes NRIs make when investing in India.
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5 Common Mistakes NRIs make when Investing in India
1. Keep using their resident accounts
Generally, NRIs continue with their resident accounts as before, which is not legal. As per the RBI guidelines, once someone attains NRI status, he/she can’t operate a resident account to conduct transactions in India. Non Resident Indians are required to change their bank account and Demat account, and update KYC details. If you want to use your resident accounts after a change in resident status, you must convert the savings account into an NRO (Non-Resident Ordinary) account and Demat account into an NRO Demat account. If you have invested in mutual funds, you must inform your AMC about the status change and update the KYC details.
You can’t use the usual trading account for NRI investment in stock market. NRIs planning to trade in shares and non-convertible debentures of Indian companies on the Indian stock exchange need to open a designated Portfolio Investment Scheme (PIS) account. Non-compliance may carry heavy financial penalties from the regulator.
NRIs can continue with their PPF account opened in India, but it can’t be extended beyond 15 years (maturity period) and they can’t open a new PPF account as an NRI.
Note: A Demat account is not mandatory for NRIs to invest in mutual funds in India. NRIs can download SBNRI App to choose from 3000+ mutual fund schemes in India or to ask any questions related to mutual fund investment.
2. Ignore Tax Implications
NRI investment in India in financial instruments such as mutual funds, stocks, gold, bonds, IPOs, etc. is subject to TDS (tax deducted at source). For example, TDS for LTCG made in equity funds is applicable at 10% and 20% for debt funds. For NRIs who have rented property in India, there is compulsory TDS to be paid by the tenant at the rate of 30%. Likewise, TDS of 20% – 30% is applicable on capital gains made from sale of property by an NRI.
Moreover, NRIs often pay double tax i.e. in India and where they live. You must know that India has signed Double Taxation Avoidance Agreement (DTAA) with more than 90 countries in the world. NRIs living in these countries don’t have to pay double tax. If an NRI has already paid taxes in India for any type of capital gains, he/she is not required to pay tax for the same in the country of their residence.
3. Disproportionate Investment in Real Estate
While young tech-savvy NRIs tend to diversify their portfolio, most NRIs still disproportionately invest in traditional fixed-return assets such as real estate, bank FDs and gold. However, it makes little financial sense in terms of diversification and income generation. Rental yields of 2 – 3% from residential properties are very low. Moreover, maintenance costs of property are quite high.
If NRIs are much interested in real estate, they can invest in commercial real estate (CRE) for attractive returns.
Also Read: Can an NRI buy or own property in India?
For the last few years the Indian market has changed a lot and so has the perception of informed investors’. There are several more investment avenues available in India that are known to perform better and also come with better liquidity. Some of the NRI investment options in India that offer higher returns include direct equity, ETFs, mutual funds, IPOs, pre-IPO investment, Micro VC, NCDs, etc.
4. Not seeking professional help for investment
It is one of the common mistakes made by investors including NRIs. Generally, people prefer to take advice from relatives and acquaintances when investing in the market. To get desired returns and avoid potential hurdles, you must make informed decisions. First of all you should be clear about your financial goals, future plans like returning to India, etc. If you are investing in both countries, make sure these investments are working together towards your financial goals.
NRIs must consult certified investment professionals who keep abreast of markets and are well versed in the rules and regulations for both countries. They will guide you in the NRI investment process and also provides robust planning that will facilitate smooth transfers of your assets in India and abroad in case of any unfortunate event.
5. Overlook the changes in the status of previous investments
NRIs must review or settle their investments made before leaving India because they may not be able to enjoy the same privileges and retain them as before. For example NSCs are considered encashed, a PPF account can’t be continued beyond 15 years and you won’t be eligible to hold savings or postal schemes once you attain the NRI status.
Can NRI Invest in Indian Stock Market?
Yes, NRIs (Non-Resident Indians) can invest in the Indian stock market, subject to certain guidelines issued by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). NRIs can invest in the Indian stock market by opening a PIS (Portfolio Investment Scheme) account with a designated bank authorized by RBI. This account is a special bank account that allows NRIs to invest in Indian securities like shares, debentures, and mutual funds.
How to do Trading in Stock Market in India
An investor can’t directly buy or sell shares on a stock exchange. To start trading in stock market in India, you need to open a Demat and trading account with a registered stock broker, also called a trading member, in India. For example, some of the top stock brokers that offer a Demat and trading account for NRIs are Zerodha, Angel Broking, ICICI Direct, HDFC Securities, Kotak Securities, Sharekhan, etc.
A Demat account holds shares you have purchased in electronic format, whereas a trading account facilitates share buying and selling activities.
How to Start Trading in Stock Market in India?
Here are the four steps you need to take to start trading in stock market in India:
1. Open Demat and Trading Account
First of all you need to open a Demat and trading account with a registered stock broker in India. A Demat account holds shares you have purchased in electronic format, whereas a trading account facilitates share buying and selling activities. To open a Demat and trading account with a broker, you need to fill an account opening form designed by the broker.
2. Login to Your Account and Add Money
Once you have opened a Demat and trading account, you can log in to your account and add money from your bank account to your trading account. Now you can use your trading account to buy shares.
3. Start Trading in Stock Market in India
Now you are ready to start trading in India. You can select a share and view everything about it, including live market prices, historical prices, charts, other details, etc. Once you have analyzed, you can start buying and selling shares. Money is debited from your bank account and the share is transferred to your Demat account.
How can NRIs Trade in Stock Market in India
While NRIs have similar rights as resident Indians when it comes to investing in India, they are required to go through a more regulated framework and compliance considerations. Here is the process for NRIs to trade in the stock market in India.
Open 3-in-1 NRI Account
An NRI investor needs to open a 3-in-1 NRI account to trade in the stock market in India. A 3-in-1 account for NRIs is a combination of NRI Demat account, trading account and NRE/ NRO bank account. An NRI investor can appoint a mandate holder to operate his NRE/ NRO account in India and must give an ‘Appointment of Mandate Holder’ application to the bank with necessary documents and the specimen signature of the mandate holder.
Power of Attorney (POA)
NRI can appoint a power of attorney (POA) in India for trading as well as redeeming the investment in India. However, NRIs can trade online through a broker after fulfilling the compliance requirements and KYC guidelines.
NRIs can invest on Repatriable or non-Repatriable basis
The NRI can invest in India on repatriable basis through their NRE account or non-repatriable basis using their NRO account. However, in case of non-repatriable basis, the maximum fund they can transfer abroad is $1 million per year.
These are some of the most common mistakes NRIs make when investing in India. You must keep the above points in mind to ensure your hard-earned money is invested judiciously. SBNRI has a team of experts to help NRIs invest in India, in tax filing and NRE account opening, etc. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to investment in stock market/ mutual funds, NRI account opening online and tax filing in India. To ask any questions, click on the button below. Also visit our blog and YouTube channel for more details.
As per the Indian Income Tax Law, an individual will be treated as a resident Indian for a year if he/she satisfies any of the following conditions:
– He/ she has lived in India for a period of at least 182 days during the financial year. Or
– He/ she has lived in India for a period of 60 days or more in the year and for a period of at least 365 days or more in the preceding four years.
If the individual satisfies any one or both the conditions, he/she is considered a resident. If he/she satisfies no conditions, he/she will become a Non-Resident Indian (NRI).
You need to open an NRE (Non-Resident External) account with a RBI-registered bank to invest in stock markets. You can have a single PIS account for investment in stock markets.
Here are some important facts about NRI investment in India:
– NRIs can’t participate in intraday trading in stock markets.
– NRIs can only trade on a delivery basis in the Indian stock market.
– NRIs can acquire shares and convertible debentures of an Indian company via the stock exchange, but there is a ceiling for overall investment.
– As per an RBI mandate, NRIs are barred from investing in some stocks and sectors.
– NRIs can’t trade in some financial instruments like currency derivatives and commodities.
Yes, NRI can invest in Indian stock market. Non-resident Indian investors can buy or sell shares and convertible debentures of an Indian company on stock exchanges with an NRI trading account. However, NRIs can’t engage in intraday trading, BTST trading and even short selling.
You have the option to sell your shares before your residency changes. Alternatively, you can transfer your shares to your NRO/ NRE Demat account. You will get proceeds in your NRO account after you sell them. Keep in mind that you are allowed to repatriate up to $1 million in a calendar year.
You can trade in equity through an NRE or NRO account. However, you need an NRO account to trade in futures and options. NRIs are allowed to trade in equities in India only on delivery basis.