NRI Trading: Restrictions, Rules & Investment Options

India is a very lucrative country to invest in. It is one of the fastest growing economies and is predicted to become a superpower. The foreign direct investment into India was the highest ever during the financial year 2020-21. It was  $67.54 Billion for the first nine months (Apr-Dec 2020). It has been forecasted that the Indian economy will grow at 6.7% in 2022. This is amongst the fastest in the world. According to the ministry of finance, India’s GDP is projected to grow in real terms by 8.0-8.5 per cent in 2022-23. The following are the details about NRI trading restrictions, rules and investment options. 

NRI Trading: Restrictions, Rules & Investment Options
NRI Trading: Restrictions, Rules & Investment Options

NRI Trading Restrictions

  • NRIs are not permitted to participate in short selling.
  • NRIs are prohibited from investing in certain sectors mentioned below :

Lottery Business including the government, private lottery or online lotteries.

Gambling and betting including in casinos

Nidhi company: A type of Non Banking Financial Company (NBFC)

Trading in Transferable Development Rights (TDRs).

Real Estate Business or Construction of Farm Houses.

Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

Activities or sectors not open to private sector investment such as (i) Atomic energy and (ii) Railway operations.

Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract.

  • NRIs must trade on a delivery basis and cannot do intra-day trading.
  • NRIs are not permitted to trade in commodity derivatives.
  • NRIs are required to take RBI approval for trading in scrips that are on the caution list. (The caution list is the list of stocks issued by the RBI on which the NRI investments are close to the threshold holding limit.)
  • NRIs are not permitted to trade in stocks on the ban list. (The ban list is the list of stocks issued by the  RBI where the NRI investments have reached the threshold limit.)

NRI Trading Rules in India

  • NRIs need banks and stock brokers in order to trade in Indian markets.
  • NRI needs non-resident bank accounts, a trading account and a demat account to start trading in India market. (Non-Resident External (NRE)/Non-Resident Ordinary (NRO))
  • Originally NRIs and PIOs could  only invest in secondary capital markets  through the Portfolio Investment Scheme (PIS) under the RBI, This was whether the NRIs wanted to trade on a repatriation basis or non-repatriation basis. This has now been changed for NRO trade. Trade without the PIS can be done in the same way that Indian residents can do it. Now NRO transactions need not be reported to RBI by routing through the PIS account making the NRI transaction process faster and simpler.
  • NRIs can invest up to 5% of the paid-up capital of the listed Indian company in the recognized stock exchange on a repatriation or non-repatriation basis
  • NRIs can invest up to 5% of the paid-up value of each series of debentures of listed Indian companies on a repatriation or non-repatriation basis.
  • Investments by all NRIs put together must not exceed 10% of paid-up capital of the Indian listed company or paid-up value of each series of debentures of the company.
  • The above aggregate ceiling can be raised to 24% if the Indian company passes such a special resolution .
  • NRIs are required to maintain a higher bank balance than resident individuals.
  • In order to trade in the derivatives market, NRIs must gave a custodial participant code. NRI investments should be on a non-repatriation basis and rupee funds held in India should be used.
  • NRIs can offer instruments as collateral for trade in exchange-traded derivative contracts according to the rules specified by RBI and SEBI

NRI Investment Options

In addition to the  secondary capital markets, NRI investments are allowed to invest in the following securities without any limitations:

NRI Investment on a Repatriation Basis

  • Government dated securities
  • Treasury bills (T-bills)
  • Units of domestic mutual funds
  • Bonds issued by a Public Sector Undertaking (PSU) in India
  • Shares in Public Sector Enterprises being disinvested (partial dilution) by the Central Government
  • Bonds/ units issued by Infrastructure Debt Funds
  • Listed non-convertible/ redeemable preference shares or debentures
  • Perpetual debt instruments (with an overall ceiling of 24%) and Debt capital instruments issued by banks in India to augment their capital
  • Initial Public offerings
  • National Pension System (This option is available for NRIs between 18 to 60 years)
  • NRI Investment on Non Repatriation Basis

NRI Investments Permitted on a Non-Repatriation Basis:

  • Government dated securities
  • Treasury bills (T-bills)
  • Units of domestic mutual funds
  • Units of Money Market Mutual Funds
  • Listed non-convertible/ redeemable preference shares or debentures
  • Initial Public offerings
  • National Pension System
  • Chit funds

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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FAQs

Can NRIs participate in short selling ?

No, this is not allowed. 

What do NRIs need to trade in the Indian markets ?

NRIs need banks and stock brokers in order to trade in Indian markets.

Can NRIs do intra-day trading ?

No, this is not permitted. 

Are NRIs permitted to trade in commodity derivatives ?

No, this is not permitted. 

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