Can NRIs Trade in Derivatives in India ?

India is a lucrative place for trading and investment and NRIs should take advantage of this. Can NRIs trade in derivatives in India ? They certainly can. The majority of trading on a daily basis in India is done through derivatives. The rules and regulations for NRIs can be complex. NRIs, OCIs and PIOs can all trade in derivatives through a particular set of rules. We are going to explain what derivatives are and how NRIs can trade in them in India. 

Can NRIs Trade in Derivatives in India ?
Can NRIs Trade in Derivatives in India ?

What are Derivatives ?

A derivative is based on an underlying asset or set of assets. These assets could be securities, stock market index, commodities, bullion, currency etc. It is a financial contract between two or more parties. Derivative prices depend or derive from the variation in the underlying asset. Derivatives are used to hedge the portfolio in order to avoid future risk. 

Benefits of Trading in Derivatives 

  1. Hedging: You can minimize losses in your investment through hedging.  A hedge is an investment made in order to reduce the risk of variation in the underlying asset having negative consequences. 
  1. Speculation: Futures and Options allow you to speculate on the short term movement of markets 
  1. Arbitrage: You can profit on the difference between the cash and derivatives in different markets.
  1. Leverage/Margin Trading: You don’t have to pay the full traded value as it allows purchasing derivatives by just paying a % value of the traded value called the margin. 

NRI Eligibility to Trade in Derivatives in India

All NRIs can trade in derivatives as long as they adhere to the FEMA rules mandated by the RBI, SEBI, NSE, BSE and other regulatory bodies.

How to Open an Account to Trade in Derivatives in India

Per regulations, NRIs can trade in derivatives through their Non-PINS NRO account on  a non-repatriable basis. Here is an example of the ICICI bank process.

ICICI Bank Process

NRIs can trade in Derivatives through their Non-PINS NRO account. If you are an:

Existing Customer:

If you are an existing customer and have a Non-PINS NRO account you can directly register yourself for Derivatives by submitting the Derivatives application form.

If you are an existing customer and do not have a Non-PINS NRO account:

Then you need to open a Non-PINS NRO account by submitting the 3-in-1 Account Opening Form for opening an Additional account along with the above Derivatives application form.

New Customer:

If you are a new customer you can submit a 3-in-1 Account Opening Form by selecting the Non-PINS NRO account along with the Derivatives registration form.

Registration for NRIs to Trade in Derivatives in India

NRIs have to register specifically for derivatives. If you have a Non-PINS NRO account you can submit the derivatives application form along with the verified documentary proof of registration to trade in Derivatives.

Documents Required for NRIs to Trade in Derivatives in India

  1. NRI Derivatives form

2. Verified copies of PAN

3. Valid Passport

4. Copy of documents indicating financial details is given below:

  • Copy of Latest ITR Acknowledgment (Latest IT Return)
  • Copy of Latest Annual Accounts
  • Latest Form 16
  • Copy of Latest Net worth certificate
  • Latest Salary Slip
  • Copy of Bank account statement for last 6 months (this will be from the date of Inward. Also, customer need not give a separate copy of bank statement if has given the same as a proof of address and which suffices this condition of last 6 months.)
  • Copy of demat account Holding statement.

NOC from existing member would be required if you are already registered for trading in Derivatives with any other member. 

Do PAN & Passport Proof Need to be Submitted with the Derivatives Application Form for Registration?

Per regulatory requirement, pan and passport proof must be submitted with the derivatives application form for registration. 

Can the Address on the Derivatives Application Form and the existing Trading Account (if any) be Different?

No. The addresses have to be the same. If your address has changed you need to submit a change of address form. 

How Will I FInd Out When I am Registered for Derivatives Trading in India?

You will receive an email confirming this. 

Is a Demat Account Mandatory for Derivatives Trading ?

It is mandatory to have a trading account to trade in the financial markets in India. The trading account is required to buy equities, derivatives etc. A demat account is only mandatory for equity-related transactions. A demat account is not necessary for futures and options trading. 

What is the Difference between the Resident and NRI process for trading in Futures and Options ?

For residents, all the derivatives trades are settled by the broker but for an NRI client the F&O trades are settled by the Custodian

Also Read: 

USA NRI Trading Account in India for investment

ICICI Direct NRI Trading Account: Types & charges

NRI Trading Account Charges Comparison 2022 – 23

To ask any questions related to the rights of NRIs, PIOs, and OCIs, you can download SBNRI App from the Google Play Store or App Store. You can also use the SBNRI app for investment in stock market/ mutual funds, NRI account opening, tax filing, etc. To ask any questions, click on the button below. Also, visit our blog and YouTube channel for more details. 

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What are Futures and Options ?

A future is a contract to buy or sell an underlying stock or other asset at a predetermined price on a specific date. On the other hand, an options contract gives the investor the right but not the obligation to buy or sell the assets at a specific price on a specific date, known as the expiry date.

What is the benefit of hedging ?

You can minimize losses in your investment through hedging. 

How much of daily trading in India is done through derivatives ?

The majority of daily trading in India is done through derivatives.

What are the benefits of trading in derivatives?

Hedging, Speculation, Arbitration and Leverage.

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