Today, India is one of the fastest growing economies in the world. This is the reason why Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs ), and Overseas Citizens of India (OCIs) have been increasing their investment in the Indian equity market. There are several NRI investment options in India. Just like Indian residents, NRI investors also need to open Trading and Demat accounts to trade in the Indian capital market. An NRI Demat account can be used by NRIs and OCIs to trade in bonds, stocks, *NRI mutual funds, etc. Let’s understand Demat account for NRIs in detail.
What is an NRI Demat Account?
An NRI Demat account is online storage to hold financial securities in an electronic form. It is very similar to a Demat account for residents. A Demat account is a sixteen unique digit number and is maintained by depository institutions i.e. NSDL and CDSL in India. A Demat account is mandatory for NRIs who want to invest in shares, bonds, IPO, and many other asset classes.
NRI Demat Account is a part of the trading account which an NRI opens to trade in the Indian stock market. Whenever you buy or sell shares using your trading account, your demat account is debited or credited accordingly.
*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.
Types of NRI Demat account
There are two types of NRI Demat accounts as follows:
NRE Demat Account
In an NRE Demat account, your Demat account is linked with your NRE bank account. NRIs can buy and sell stocks, bonds, etc. using their NRE Demat account. Funds in an NRE Demat account are fully repatriable i.e. the investment amount and the profit earned in an NRE Demat account can be transferred abroad.
If you use an NRE Demat account to trade in the Indian capital market, you need to route your investments through “>PINS (Portfolio Investment NRI Scheme). NRIs can only invest in the stock market through an NRE Demat account.
NRO Demat account
An NRO Demat account is a non-repatriable Demat account which can be used by an NRI investor to trade and invest in stocks, mutual funds, bonds, futures and options (F&O), etc. With an NRO Demat account, NRIs don’t need to invest through the PINS route.
Since it is a non-repatriable NRI account, the principal investment amount up to $1 million can be transferred abroad in a financial year, after the deduction of taxes. Interest earned is repatriable after TDS is deducted.
NRIs can open two separate Demat accounts for investments on repatriable and non-repatriable basis.
How to open NRI Demat Account
NRIs can open a trading account and Demat account for NRIs with a bank, stockbroker, or deposit participant registered with NSDL and CDSL. You can also apply for a Demat account through a third-party website like SBNRI. Banks offer a 3-in-1 account service and stockbrokers provide a 2-in-1 account. Checks the best Demat account for NRIs.
Once you have decided repatriable Demat account and non-repatriable account, or both, you make the following steps to open an NRI Demat account:
- Get your documents notarized by the Indian embassy/ consulate or any competent authority in your country of residence as per SEBI’s regulations.
- Visit the official website of the bank or stock broker that provides a Demat account for NRIs.
- Click on ‘Open Demat account, tab. You can also apply for a trading account as well.
- Type the required details and attach all required documents.
- Once you have submitted your documents successfully, the bank or stock broker will process your application and send your Demat account number on approval.
Note: Before you apply for an NRI Demat account, you need to keep the following documents handy:
- Your PAN card
- Canceled cheque of NRE or NRO account that has to be linked to the Demat account
- PIS permission letter issued by the Reserve Bank of India to the NRI applicant
- Duly filled NRI Demat account opening form signed by the NRI applicant
- PIS permission letter from the RBI
- PAN Card copy
- 1 to 3 passport size photographs of the applicant with his signature across the photos
- Overseas address proof
- Copies of visa and passport
- Canceled cheque of the NRE/ NRO account
- Photographs and signature of the nominee (where applicable) for using nomination facility
- Proof of Income (For trading in derivatives) (Eg.: Copy of ITR Acknowledgement)
Can I continue using my Resident Demat Account?
No sir. You can not. Once you have acquired an NRI Status, you need to adhere to the guidelines set up by the Foreign Exchange Management Act (FEMA). If you had already invested in shares using your resident Demat account, you need to initially convert your resident account into a Non-Resident Ordinary (NRO) Account.
The resident Demat account must be closed and the shares that are held in that account must be transferred to the NRO Demat Account. Post the transfer, you can hold them further or sell them. The proceeds from selling the shares will be credited to the NRO Account of the NRI.
Note: You can only repatriate up to a maximum of 1 million USD per year after certifying that taxes are paid on the funds being repatriated. In addition to that, it is also noteworthy that NRIs can buy stock raised through Initial Public Offers (IPOs) using funds in their Non-Resident External (NRE) account on a repatriable basis.
Can NRIs have multiple Demat accounts?
Yes. An NRI can have multiple Demat accounts. The usage of these multiple Demat accounts can be understood under the concepts of:
- Repatriation: NRIs must have separate Demat accounts for repatriable (NRE) and non-repatriable (NRO) shares which mean if you invest through your NRE account, the money you receive after selling the shares/stocks is completely and freely repatriable whereas investments through NRO accounts will have to be initially settled by paying applicable taxes and then they can be repatriated. NRE accounts are used to buy shares (equity) on a repatriable basis and NRO accounts are used to invest in shares (equity and derivatives) on a non-repatriable basis. The NRE/NRO Accounts can be used to invest in the primary market without PIS (Portfolio Investment Scheme) (eg: IPOs, Mutual Funds)
- Market Variation: In order to invest in the secondary market you need a separate bank account to hold your investment funds that will be linked to the Portfolio Investment Scheme (PIS). This account can not be your regular NRE/NRO account and this account will be linked to a Demat account to hold your shares as directed by RBI.
The previous segment must have created some doubts for NRIs: What are primary and secondary markets? What is PIS? Let’s understand these too to get a complete overview.
Types of Markets in India
There are two types of investments markets that can accept investments from an NRI or Resident Indian:
- Primary: A primary market deals with the introduction of fresh stocks and bonds that are rolled out for sale for the first time. Examples are Initial Public Offerings (IPOs) for stocks. All Mutual Fund investments also fall under the Primary Market.
- Secondary: A secondary market deals with the trading of listed stocks which means that a secondary market is a place where investors buy and sell securities they already own. It is what most people typically refer to as the “stock market,” though stocks are also sold on the primary market when they are first issued.
Now, Investments in the primary market don’t require a PIS Account whereas PIS Accounts are mandatory for investments in the secondary market. Let’s now understand what these PIS Accounts are.
What is a PIS Account?
The Portfolio Investment Scheme (PIS) account holds the investment amount of the NRI. The purchases are directly debited from this account, and the earnings are credited to the account. The PIS permission letter is required for opening a demat (for holding stocks in electronic form) and trading account (account with a registered broker for trading in the market) that is issued by the banks. PIS Bank Accounts are essential for investment in the secondary market (stock market) as they are used to maintain and track the investment caps for NRIs as established by the Reserve Bank of India. (An NRI can not invest more than 10% of the paid-up value of shares of an Indian Company)
NRIs can purchase and sell shares and debentures of Indian companies on a recognized stock exchange using their PIS Accounts.
The PIS Accounts can be opened at designated branches of all the major banks in India and through third party providers such as Zerodha or ICICI Direct 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 in India or the third party providers via courier in order to open the PIS Account.
Also Read: PINS Account: NRI Stock Trading in India
The Documents Required for a Portfolio Investment Scheme (PIS) Account for NRIs are:
- Copy of valid passport (pages with your name, address, date of birth, date and place of issue, expiry date, photograph, address, signature)
- Proof of NRI status (by way of valid Employment/Residence Visa copy or Work/Residence Permit)
- Copy of Indian PAN card
- Proof of Overseas and Indian Address
- Recent passport size colour photograph
There are certain restrictions for NRIs while investing in the share market using their PIS Accounts in India, which are:
- An NRI cannot transact in India except through a stock broker.
- 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
- The NRI demat account cannot be opened or operated by an Indian Power-of-Attorney holder in the absence of the NRI. The person also cannot make payment out of India on behalf of the NRI.
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 rebuying the same stocks at a lower price. The strategy here is to benefit from the falling prices of the stocks.
NRI Investment in India has always been looked at with a layer of doubt and confusion. It’s time to go beyond that. You can get an investment advisory from experts at SBNRI and sort your NRI Investments in India. Contact us using the button below.
Yes. An NRI can have multiple demat accounts. The usage of these multiple demat accounts can be understood under the concepts of Repatriation and Market Variation. Click here to know more.
Yes. A PIS Account is mandatory for NRIs to invest in the secondary market. A PIS account is basically required by the regulator to monitor investment limits by NRIs in the stock market. 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).
Yes. NRIs can invest in Indian equities by investing their money into stocks listed on the National Stock Exchange of India Ltd. (NSE). To be eligible to invest into stocks, NRIs need to be a part of the Portfolio Investment Scheme (PIS) that will allow them to trade stocks.
A non-repatriable demat account is an NRI demat account linked with an NRO bank account. In this account, there are restrictions on transferring money to a foreign country. As per RBI rules, the dividend amount and interest earned are fully repatriable, however the principal is not repatriable.
A repatriable demat account is an NRI demat account linked with an NRE bank account. All the proceeds from selling securities and profits from investments that are credited to the NRE bank account can be transferred abroad.