Many Non Resident Indians (i.e. NRIs) are not sure as to (i) regulations applicable to them with regard to investing in Indian shares and (ii) documentary requirements which apply to them.
In this article, I will explain the correct (and legal) way of NRI investment in shares, mutual funds and other financial instruments in India.
Non-Resident Indian (NRI) – NRI is someone who was residing outside India for at least 182 days in a financial year. [as per the Indian Income Tax Act, 1961].
Do’s & Don’t for NRI Investment
- If you recently became an NRI and so far you have been transacting using your savings / current bank account linked to your trading and demat account, PLEASE STOP TRADING WITH THESE ACCOUNTS.
- The moment you become an NRI (or when you become a Resident Indian upon your return to India), it is your duty to close your existing accounts and open new NRI account for – (i) trading (ii) de-mat and (iii) banking.
- NRIs can ONLY invest in Indian stock market under the Portfolio Investment NRI Scheme (PINS) of the Reserve Bank of India (RBI).
- NRIs can have more than one trading and demat account but can have only one bank account linked to those accounts. This bank account can be an NRE account or an NRO account.
- NRIs are not allowed to trade intra-day but can trade in the F&O segment.
What is Portfolio Investment NRI Scheme?
Under PINS scheme of the RBI (defined in Schedule 3 of Foreign Exchange Management Act 2000), NRIs and Persons of Indian Origin (PIOs) can buy/sell shares and convertible debentures of Indian companies on a recognized stock exchange (BSE/NSE) in India through their account held with a designated bank branch.
Steps to Follow For Investing in Indian Share
- Open a PINS account with RBI approved designated bank branch;
- Open a NRE/NRO account;
- Open a Demat Account with a depository participant;
- Open a Trading account with a SEBI registered broker to execute trades on your behalf on the Exchange.
There are many brokerages houses which offer these facilities under one umbrella and provide integrated investment services. For example – Kotak Securities, ICICI Direct etc.
Documents Required to Open Trading Account
- Document ensuring status of identity;
- In case of Indian passport – Valid passport, Place of birth as India, Valid Visa – Work/Student/employment/resident permit etc.
- In case of foreign passport – Valid passport and any of the following:
- Place of Birth as India in foreign passport
- Copy of PIO / Overseas Citizenship of India (OCI) Card
- PINS permission letter from the respective designated bank;
- PAN Card;
- Overseas Address Proof – Driving License/ Foreign passport /Utility Bills/ Bank statement (not more than 2 months old)/ Notarized copy of rent agreement;
- Proof of respective bank accounts & depository accounts.
Charges for NRI Trading Accounts
Here’s a breakdown of the costs of trading with the basic NRI Account
|Kotak Securities||ICICI Direct||Axis Securities|
|Account Opening Charges||Rs. 3750||Rs. 4000||Rs. 3000|
|Brokerage||1% of the turnover OR
10 Paise per share, whichever is higher
|0.50 % – 1.25%||0.75%|
|Securities Transaction Tax (STT)||0.1%||0.1%||0.1%|
|Average Quarterly Balance in Savings Account||Rs.10,000||Rs.10,000||Rs.10,000|
|Account Type||Maintenance Fee|
|PINS||Rs.1000 per year||Rs.1000 per year||Rs.1500 per year|
|Demat||Rs. 75 per month||Rs. 50 per month|
Note – Short term Capital Gain Tax of 15.45% on profit is applicable if stocks are sold within a year of purchase.
Note: As per SEBI regulations, maximum allowable brokerage on stock trading is 2.5% of total value of trade.
Guidelines under Portfolio Investment NRI Scheme
- An NRI can purchase up to a maximum of 5% of the paid up equity share capital of the company (equity as well as preference capital);
- An NRI can purchase up to a maximum of 5% of the each series of convertible debentures of the company;
- There is an overall ceiling of 10% of paid-up equity share capital of the company for purchase by all NRIs put together.
- However, this overall ceiling can be raised to 24 % if the company passes a special resolution to that effect in its general body meeting.
While limits of individual holdings by NRIs are monitored by the respective designated bank branch, RBI also monitors the holding limits by NRIs. Once the ceiling is breached, the stock is blocked by RBI for NRI trading. This script is re-opened for trading once the holding percentage of NRIs drops down.