Esha Mathur asked on 30/03/2020

How can NRIs invest in Indian stock market?

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SBNRI Team
answered on 30/03/2020

NRIs can invest in Indian Stock Market by buying stocks listed on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to have a PIS Account under the Portfolio Investment Scheme* (PIS) that will allow them to trade stocks. *(Portfolio Investment Scheme (PIS): Through this scheme of the Reserve Bank of India, NRIs can purchase and sell shares and debentures of Indian companies on a recognized stock exchange) 

 

How can NRIs invest in Indian stock market?

 

The PIS Accounts can be opened at designated branches of all major banks in India and at third party providers like Zerodha to ease out your investments in shares. 

You either need to visit the designated bank branch in India or send the required documents to that branch or other third party providers in India via courier in order to open the PIS Account.

 

How can NRIs invest in Indian stock market?

In order to buy shares, an NRI requires the following 3 accounts:

  • A Bank Account for PIS Purpose that can be opened by applying online at all the top banks and third party websites (like Zerodha)
  • Dematerialized Account that holds shares in an electronic form that requires certain documents, which are:
    • Proof of Identity (POI) (Eg.: Driving license)
    • Proof of Address (POA) (Eg.: Passport)
    • Proof of Income (For trading in derivatives) (Eg.: Copy of ITR Acknowledgement)
    • Proof of Bank Account (Eg.: Cancelled cheque)
    • PAN Card
    • 1 to 3 passport size photographs
  • A Trading Account with a registered broker that requires certain documents (for both NRE/NRO accounts), which are:
    • Indian address proof (not required in case of NRE)
    • Foreign address proof (Mandatory in both cases)
    • PIS Letter (issued by RBI)
    • PAN card
    • 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 a bank verification letter is required
    • All the photocopies of the KYC documents should be attested by any of these entities: Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.

There are certain restrictions for NRIs while investing in the share market in India, which are:

  • An NRI cannot transact in India except through a stock broker or third parties like Zerodha
  • NRIs cannot trade shares in India on a non-delivery basis*, that is, they can neither do day-trading nor short-sell in India. If they buy a stock today, they can only sell it after two days.
  • NRIs must carry out all the purchase/sale from one designated bank branch only
  • There are certain ceilings NRIs are bound to:
    • 5% of the paid-up value of shares of an Indian Company each for repatriable and non-repatriable basis which means that the maximum ceiling per Indian Company for all NRIs will be 10%, which can be increased to 24% if the company passes a resolution for the same

Basic term definitions:

  • Non-Delivery Basis: Delivery means you buy the stock but “hold” it overnight. In the cash segment, you have to wait for two business days after the transaction to receive the actual delivery. Eg: If you bought on Tuesday, then you get the delivery on Thursday after closing. Non-delivery means you sell on the same day when you buy (Also called “day trading“). Eg: You buy a stock on Tuesday and sell it on Tuesday.
  • Short-Selling: Short selling is a method of borrowing stocks and selling them in the open market and then re-buying the same stocks at a lower price. The strategy here is to benefit from the falling prices of the stocks.

 

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