Are you a NRI and want to trade in Indian stock market ? Have you left Indian on H1B visa and still want to trade in Indian Share market ? Not sure if you can keep you Demat account if you are going to US on work VISA ? Read this article and all your doubts would be cleared.
If you are a NRI, you can trade in Indian stock market period. But specific Demat account have to be opened by NRI with a SEBI-registered Depository Participant (DP) for the purpose of holding traded shares. You have to get a PIS from your bank before you can legally start to trade in Indian markets.
*Update as on Sep 1st, 2016 :
There is good news for all NRI’s wanting to invest in the Indian stock markets. They will not need to get PIS number anymore for investing in Indian stock market. RBI has now amended FEMA regulations which now allow NRI’s to invest in Equity markets on non-repatriation basis just like resident individuals. Here’s the link to the RBI circular.
During account opening, NRI will only need to provide NRO savings account cancelled cheque leaf as a proof apart from PAN card and address proof. Equity – delivery and intraday trades will be allowed using this account. Trading in F&O (equity, currency, commodity) will not be allowed.
This service is now provided by the largest discount broker in India, ZERODHA. They charge delivery brokerage of ZERO and for intraday trades, they charge .01% or Rs 20 whichever is lower.
Types of Demat Account for NRI :
As per the relevant guidelines there are two types of Demat Accounts available for NRIs to open i.e. – Repatriable and Non-Repatriable.
1. Repatriable Demat Account: Repatriable Demat Account is used to hold securities that purchased using funds that are repatriable. When you sold these sales proceed of these shares is usually credited to the NRE Bank Account.
2. Non-Repatriable Demat Account: Non-Repatriable Demat Account is used to hold securities purchased using funds that are non-repatriable funds or bought when you were an Indian citizen. The sale proceed of these securities are generally credited to NRO Bank Account.
Now it is important for us to understand the meaning of few words/technical terms used.
A. Repatriable means: It is the portion of that income which is legally permitted to be repatriated/sent to another country.
B. Repatriable means: It is the portion of that income which is not permitted by the RBI to be repatriated/sent to another country.
C. NRO Bank Account: NRO Bank Account means Non Resident Ordinary Bank Account which is opened by a NRI in India. NRE account is used to kept the amount in rupees which can be converted and repatriated back into foreign currency.
D. NRE Bank Account: NRE Bank Account means Non Resident External Bank Account which is opened by a NRI in India. NRO account is used to kept the amount in rupees which cannot be converted or repatriated back into foreign currency.
Being an NRI, you may already know what is mentioned below. The process begins with having a savings bank account. The NRIs might about this, but for newbies or the ones planning to move abroad look out for all the features of various Deposit Schemes available to Non-Resident Indians (NRIs) i.e. more about NRE and NRO accounts.
To trade in Indian stocks, an NRI must obtain RBI’s permission. NRIs are permitted to invest in the Indian stock markets under a “Portfolio Investment Scheme”.
The next step is to open a trading and demat account. And start investing.
This is just a brief round-up of the process. Each of the above step requires proper understanding, documentation and further research.
Portfolio Investment Scheme (PIS)
Under RBI’s Portfolio Investment Scheme, NRI are allowed to trade in Indian secondary market on opening a PIS account with authorized dealer banks – “Designated Bank” (banks who are authorized by RBI to deal with PIS). The bank where you have your NRE/NRO account will get this done for you. NRI can trade in shares and convertible debentures only after they have a PIS account. Now, here are a few points you must know:
- A NRI can have only one PIS account.
- NRI cannot execute intra-day trade. Have to take and give delivery of shares.
- A separate bank account (NRE or NRO) should be linked to PIS.
The designated bank gives you a PIS Letter. It’s a kind of receipt saying that you have PIS account and you are now permitted to trade in Indian markets. Along with other documents, this PIS letter is to be submitted to open NRI trading and demat accounts.
Investing in Indian Markets
An NRI not interested in purchasing Indian stocks but still will to invest in India or say Indian economy can go for ETFs in the resident country. E.g. A NRI staying in the US can invest in Ishares MSCI India ETF (BATS:INDA) which follows MCSI India index comprising of Indian equities but these ETF generally deals in Blue chip stock and hardly ever is small cap and mid cap stock. So your upside with these ETF is kind of limited.
Direct investment in equities:
RBI has a long guide of dos and don’ts for NRIs to make investment in Indian Companies. Like, a NRI cannot hold more than 10% of the company’s paid-up share capital. Know these guidelines in order to avoid penalties.
Selecting a good stock is never easy. You must know the trends, the business behind the stock and a lot more, before you make a decision to buy one. The Indian market is full of good companies. However, you cannot hold on to all.
To build a functional portfolio of your own, select a couple of industries. Start with one. Follow that industry, the companies in it. And then move forward to acquire shares of the company that is worth the money you will pay.
NRI trading is costly. Know the brokerage, other charges and taxes well before you head-off.
The charge ZERO brokerage for delivery based trades and .01% or Rs 20 brokerage for intraday trades from NRI which is by far the lowest brokerage anyone is charging NRI’s.
To know more details about NRI account opening , please click below and provide your details.