Addressing the press conference on World Economic Outlook, IMF’s chief Economist Gita Gopinath stated that the Indian economy is set to rebound by 8.8% in 2021. This statement comes in the wake of the global economic crisis because of COVID 19. The Indian equity market has been substantial throughout time showing a stable economic growth. The Indian stock market has been a very attractive investment tool for NRIs showing growth capabilities with high returns. With multiple tools like IPOs, Mutual Funds, direct equities etc. the Indian stock market provides ease and convenience for NRI investors with the government of India backing them through a simplified process and norms on trading and holding Indian equities. The Indian equity market is an essential route for NRI investment in India. In this article, we will explore this process of NRI Investment in Indian Stock Market.
In this article:
- How can NRIs invest in Indian Stock Market?
- What is a PIS Account?
- Repatriation of gains from investment in equity for NRI
- Can NRI invest in IPOs?
- Rules and Regulations for NRI Investment in Indian Stock Market
- Taxation on NRI Investment in Indian Stock Market
- NRI Investment in Indian Stock Market: FAQs
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.
Portfolio Investment Scheme (PIS): Through this scheme of the Reserve Bank of India, NRIs can invest in Indian stock market/equities and purchase and sell shares and debentures of Indian companies on a recognized stock exchange
The PIS Accounts can be opened at designated branches of all the major banks in India and through third party providers such as Zerodha to ease out 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 like Zerodha via courier in order to open the 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 (Indian stock market) as they are used to maintain and track the investment caps for NRIs as established by the Reserve Bank of India and to ensure compliance with the guidelines of Foreign Exchange Management Act (FEMA). (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.
In order to buy shares, an NRI requires the following things:
- A PIS Bank Account for that can be opened by applying online at the top banks or at third party providers such as Zerodha. 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
- A Demat 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.
Considering NRI Investment in India, specially in the Indian Equity market, you get multiple options suiting to your needs. You can invest in the Indian stock market on both repatriable and non-repatriable basis. But, only one PIS Account can be linked to both of your repatriable account (NRE) and non-repatriable account (NRO).
As we know that the NRE Account is completely and freely repatriable and NRO account has a limit of repatriation along with tax checks. But once the taxes are paid on the gains and dividends, the money can be repatriated easily. Follow the link to know about the process of repatriation from NRI Bank Accounts.
NRIs can invest in stocks raised through an Indian Initial Public Offering (IPO) through their NRE/NRO Bank Accounts. They don’t need to be a part of the Portfolio Investment Investment Scheme (PIS) for such investments. Listed below are the details of the major investment opportunities in India for an NRI and the requirements for the same:
|Fixed Deposit Bank Accounts||NRE/NRO/FCNR Account|
|Mutual Funds||NRE/NRO Account|
|Direct Equity||NRE/NRO Savings Account [for Portfolio Investment Scheme (PIS) Purpose]|
Demat Account holding shares in electronic form
Securities Exchange Board Of India (SEBI) Trading Account with Registered Broker
|Real Estate||NRE/NRO/FCNR Account|
|Bonds and Non-Convertible Debentures (NCDs)||NRE/NRO Savings Account (Non-PIS)|
|Government Securities||NRE/NRO Account|
|Certificate of Deposits||NRO Account|
|National Pension Scheme (NPS)||Pan Card and NPS empanelled Bank Account|
|Initial Public Offerings (IPOs)||NRE/NRO Savings Account (Non-PIS)|
Dematerialized Account (Account holding stocks in an electronic form)
There are certain restrictions for NRIs while investing in the Indian stock 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 rebuying the same stocks at a lower price. The strategy here is to benefit from the falling prices of the stocks.
|Minimum Holding period for Long term capital gains||1 year|
|Short term capital gains taxation||15% + 4% cess = 15.60%|
|Long term capital gains taxation||10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)(long term gains up to Rs 1 Lakh is tax-free)|
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. Read more
An NRI can invest in the Indian stock market by purchasing the shares through the Portfolio Investment Scheme (PIS). This PIS scheme is a part of the Reserve Bank of India that enables NRIs to acquire shares or convertible debentures from the stock market through a bank account with a nominated branch. They need a demat and a trading account along with the PIS enabled bank account. Read more
Yes NRIs can invest in indexed funds in India. An index fund is a mutual fund that tracks an index. Their investments mimic the index and returns would be similar to the appreciation in the index, save for the tracking error.
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 (Indian stock market) as they are used to maintain and track the investment caps for NRIs as established by the Reserve Bank of India and to ensure compliance with the guidelines of Foreign Exchange Management Act (FEMA). (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.
YES! Mutual Funds investments in India are taxable for NRIs and TDS is the major instrument of taxation NRIs are subject to. Read more