The robust growth and potential of the Indian economy have led many Non-Indian Residents (NRIs) to invest in stock markets. The streamlined process and diverse benefits have made it possible for NRIs to participate in India’s rapidly growing stock markets.
This blog will explore detailed procedures and significant benefits of NRIs investing in Indian stock markets.
Understanding NRI Meaning
Before moving on to the process and benefits of investing in Indian stock markets as an NRI, let’s first understand certain fundamentals of being an NRI investor.
“Who is an NRI?” – According to the Foreign Exchange Management Act (FEMA), an NRI is a person of Indian origin residing outside India for various purposes, such as education, business, employment, etc. To qualify as an NRI, your stay in India must be more than 60 days and less than 182 days within a given financial year. If you meet this requirement, even if you have stayed in India for more than 365 days over the previous four years, you’ll qualify as an NRI.
Process of Investing in Indian Stock Markets as an NRI:
NRIs are required to open either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) bank account before proceeding with any investment processes.
- NRE – A Non-Resident External bank account is fully repatriable, meaning that NRIs can transfer funds abroad without any restrictions.
- NRO – A Non-Resident Ordinary bank account is not entirely repatriable. Incomes earned in Indian rupees are deposited and handled in this type of account.
Another important account required for NRI investments is the PIS (Portfolio Investment Scheme) account. Reserve Bank of India (RBI) has mandated this account for investing in listed Indian companies on stock exchanges. Certain RBI-authorised banks can issue PIS letters for NRIs. RBI tracks NRIs’ conducted investment transactions using the PIS account.
2. Select the method to invest in Indian stock markets:
There are three recognised methods an NRI can select to invest in Indian stock markets:
- Mandate Holder: NRIs can appoint a mandate holder – a qualified person in India to handle their NRE/NRO accounts on their behalf. Mandate holders can manage banking transactions but cannot repatriate funds outside India.
- Power of Attorney: NRIs who don’t have time to manage their investments personally can grant PoA (Power of Attorney) to a reliable person in India. PoA individuals can operate bank accounts, trade, and handle other financial transactions on behalf of the NRI.
- Brokerage Firm: Investing in the stock market requires a Demat and Trading account. To open these accounts, an NRI is required to select a SEBI-registered stock broker in India that provides comprehensive NRI investment services.
3. Demat and Trading Accounts
A Demat account is a repository for holding securities in digital format. Whereas, a trading account is used to buy and sell securities. An NRI can open these accounts with their respective Depository Participant (stockbrokers). These accounts are linked with PIS and NRE/NRO accounts for smooth transaction processes.
4. NRI Trading Rules and Restrictions:
After setting up the Demat and Trading account, NRIs can start investing in various securities. However, there are certain rules and restrictions that NRIs should follow:
| Investment Regulations | Details |
| Equity Investment Limit | Can invest up to 5% of the paid-up capital of a listed company |
| Debenture Investment Limit | Can invest up to 5% of the paid-up value of each series of debentures |
| Aggregate NRI Investment Limit | Combined investments cannot exceed 10% of the paid-up capital or debenture’s value |
| Increased Aggregate Ceiling | The ceiling can be raised to 24% with a special resolution by the company |
| Derivatives Market Trading | Requires a custodial participant code; investments must be on a non-repatriation basis using Rupee funds |
| Short Selling | Not Permitted |
| Prohibited Sectors | Lottery, gambling, real estate business, farmhouses, etc. |
| Transferrable Development Rights (TDRs) | Cannot trade in TDRs |
| Firms with foreign technology collaboration | Banned from firms with foreign technology collaboration |
| Intraday Trading | Not allowed |
| Commodity Derivatives | Trading Prohibited |
Benefits of NRI Stock Market Investments
- Higher Returns: The process of investing in Indian stock markets exposes NRIs to many high-yielding investment opportunities. Leveraging the presented opportunities, NRIs can benefit capital appreciation.
- Diversification: Indian stock markets allow NRIs to diversify their portfolio. It helps them spread their investments across various sectors or asset classes, reducing investment risks.
- Tax Benefits: India has DTAA (Double Taxation Avoidance Agreements) with several companies, ensuring that an NRI is not taxed twice on the same income. Additionally, long-term capital gains (LTCG) on stocks are taxed at favorable tax rates.
Conclusion:
Investing in the Indian stock market is a compelling proposition for an NRI, as it blends financial growth with an emotional connection to the homeland. NRIs can efficiently navigate the Indian investment landscape by following the outlined procedures and understanding the inherent benefits.
If you are looking to open an NRI Demat account to start investing in the Indian stock market, you could rely on a full-service stockbroker like Choice. It’s one of India’s reputed stock brokers, specialising in assisting clients achieve their financial goals. With more than 30 years of experience, their team is dedicated to providing valuable and comprehensive broking services.
Open an NRI Demat account with Choice and start your investment journey today!
Disclaimer: Please note that while this article aims to provide accurate and up-to-date information, it should not be considered as official financial advice. Always make sure that you thoroughly research before making any financial decision.