NRI INVESTMENT IN SHARE MARKET

India has seen massive market development in recent years in the stock market and has attracted Foreign Direct Investment or FDI. As a result, the Indian share market has become a viable destination for Non-Resident Indians or NRIs.

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The NRIs have the right to invest in the Indian share market through a regulated network. NRIs can purchase shares of an Indian company through the stock exchanges in India on repatriation or non-repatriation basis. It comes under the purview Portfolio Investment Scheme (PIS) of the RBI.

How Can NRIs Invest in the Indian Share Market?

NRIs can manage their investments in the Indian share market in the following ways:

Mandate Holder: As NRIs are based abroad, it may not always be feasible for them to come and trade in India. To handle the NRE or NRO accounts of NRIs in India, they need to appoint a mandate holder. The NRIs need to apply for the “Appointment of Mandate Holder” to the bank. This application needs to be supported by the mandate holder’s specimen signature and other required documents.
Power of Attorney or POA: Once the NRIs have appointed a mandate holder, they need to arrange for a Power of Attorney (POA) in India. The POA will be responsible for executing investment transactions in India and redeeming the returns. An NRI needs to sign a POA agreement on stamp paper and get it notarized. Then, he/she can submit the agreement as a mandate allowing the POA to invest on his/her behalf.
Investment Brokers: Internet trading has become popular now, and Indian share and investment brokers are authorized to offer trading facilities online for their NRI clients. The NRIs need to meet the KYC guidelines and the required compliance before registering with any brokers in the Indian share market.

Repatriable or Non-Repatriable NRI Investment

Non-Resident Indians or NRIs can invest in the share market by applying for the Portfolio Investment Scheme (PIS). The Reserve Bank of India appoints authorized dealers for this purpose. Therefore, the investor needs to approach the dealers to obtain the PIS.

To invest in the share market, the NRIs need to hold a Demat account that provides an electronic platform for their financial securities. A Non-Resident Indian can have a Demat account post having the PIS license.

NRIs can invest in India through either an NRE account or an NRO account. The NRE account is external and can be opened in the name of an NRI in India. It can be used to park their foreign earnings and hence has a Repatriable nature.

In contrast, the NRO account is an NRI account in India to park NRI income earned in India in INR. The funds from an NRO account are non-repatriable beyond the limit of $1 million per assessment year, including taxes.

There are two types of NRI Demat Accounts:

NRO Demat Account: This type of account is a Non-Repatriable Demat Account. An NRI cannot transfer all the money abroad. He/she can only take the principal amount of investment back after deducting the taxes.
NRE Demat Account: An NRI can maintain this account for managing funds abroad. The money is fully repatriable, i.e., he/she can transfer all the money abroad.

The process of buying and selling shares is the same for the Indian residents as well as the NRIs. After executing the sale or purchase transaction, the broker sends a contract note to the investor and the PIS bank (Portfolio Investment Scheme Bank).

Nowadays, the banks have started providing multiple NRI banking and investment services to their investors under one roof. As an NRI one can avail of the banking services with the help of a Demat account with the banks. The types of NRI trading accounts have been classified into the following two categories:

NRI 2 in 1 account: It is a trading account plus an NRI Demat account. This type of account is offered by brokers such as Zerodha, Sharekhan, Pro stocks, etc. The Non-Resident Indians need to open a PIS and an NRE/NRO account for applying for a two-in-one account.
NRI 3 in 1 account: It is an NRI bank account, trading account, and NRI Demat account that has been integrated into one. ICICI Bank, Axis Bank, HDFC Bank offer such accounts. All the transactions in this account can be conducted smoothly and managed in one place.

What Are the Documents Required for NRI Investment in Share Market?

An NRI has to submit the following documents to open an NRI Demat account for share trading in India:

Copy of PAN Card
Visa and Passport
Passport-sized photograph
Portfolio Investment Scheme approval issued by the RBI
Carefully filled account opening form signed by the account holder
A canceled cheque

What Are the Points to Remember and Mistakes to Avoid While Investing?

The Non-Resident Indians should keep the following things in mind while investing in the Indian stock market:

Seek the Help of An Investment Professional Before Investing: Making informed and correct decisions is the first and foremost trait expected out of an investor. Look for certified investment professionals who understand the attributes of the share market. They can also help an NRI to cater to the taxation rules and regulations applicable.
Awareness About the Tax Implications: The Income Tax Act, 1961, has laid down rules for the taxation of capital gains earned on the sale of shares. The Non-Resident Indians often tend to ignore the effect of tax on their net gain or loss out of a transaction.
Long-term capital gains on the sale of equity shares are taxable at 10%, whereas short-term gains are taxable at 15%. The Government of India has entered into various double tax avoidance agreements with different countries that can help An NRI avoid double taxation. For example, the double tax avoidance agreement between India and the USA states that the capital gains are subject to tax as per the laws of the domestic country only.
*Tax benefit is subject to changes in tax laws.
The Age-Old Investment in Real Estate: Passive investors generally prefer the age-old practice of investing in safe options. These include investment in real estate or bank fixed deposits. Thereby, the investors should comprehend the other alternatives available.
Review the Changes in Investments: When the residential status changes from an erstwhile resident to a Non-Resident, the privileges one enjoys as a resident, such as a public provident fund account, tend to change. Therefore, as an NRI one must review his/her investments
Continuous Use of Resident Accounts: NRIs generally tend to continue using their resident accounts in India even after attaining the Non-Resident Indian status. It is considered illegal in India, and the NRIs need to change the details related to their bank account, Demat account, and their residency status.
Awareness of the Negative List: There are certain stocks where the Non-Resident Indians are not allowed to trade. Such transactions entail steep penalties, and one needs to avoid them.

In Conclusion

Non-Resident Indians can easily invest in the Indian share market by opening a Demat account online or offline. The account should be based on his/her requirements and specifications desired. An NRI should choose wisely between the repatriable and non-repatriable accounts to ensure higher returns and effective utilization of his/her investments.

FAQ's

Q. Is the RBI approval required before opening my Demat account?

Ans. On a repatriation basis, Non-Resident Indians can invest in the Indian share market. You will require a Portfolio Investment Scheme permission letter issued by the RBI. Then, you can route your transactions through the NRE Bank account.
Q. Is a Non-Resident Indian allowed to open a joint Demat account?

Ans. Yes, the Non-Resident Indians can open a joint Demat account. However, it is essential to submit all the KYC documents coupled with FEMA declarations and FATCA (Foreign Account Tax Compliance Act) declaration.
Q. As a Non-Resident Indian, which Demat account is best for me?

Ans. Many banks and brokerage firms provide Demat facilities across India. Choose the one that can provide hassle-free account opening, low expense and management charges, and a seamless interface between the bank account and the Demat account.
Q. What are the charges levied to maintain a Demat account?
Ans. You will have to pay the following charges to maintain a Demat account:
- Account Opening Fee – One-time fee paid during the account opening process.
- Annual Maintenance Charges – Yearly charges to run and maintain the Demat account.
- Debit Transaction Charges – You will have to pay a debit transaction cost whenever you sell the shares or withdraw.
- Other Charges – Fee for portfolio management, account updating, and so on.
Q. What are the advantages of opening a Demat account?
Ans. The benefits of opening a Demat account are:
- Provides an avenue to invest in shares, mutual funds, convertible debentures, and so on.
- The account can hold even a minimum of one share.
- Minimum risk of fraud, loss of documents, or late delivery.
- You can carry out transactions quickly and seamlessly.

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^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).