How NRI can Invest in Indian Stock Market (Complete Guidelines)

While Indians residing in other countries or NRIs can also invest their money in stock markets just like any other investor, the rules are slightly different for an NRI as compared to an Indian. The reason is the investors’ location being away from the country, foreign bank accounts, foreign currency etc.

The markets regulator in India Securities and Exchange Board of India (SEBI) has laid down the procedure for NRIs to start trading in the Indian stock markets. There are generally many steps involved for an NRI to start trading in India and each step needs to be followed compulsorily before the actual buying and selling of stocks, shares etc. can happen.

First let us understand the meaning of NRI as per the laws. According to the Foreign Exchange Management Act (FEMA), an NRI is any individual who lives outside India for the purpose of education or employment for an uncertain time period.

Once it is established that an investor is an NRI, he/ she can choose to invest in the Indian stock markets in three different ways. First, by appointing a mandate holder to operate their trading activities in India, Second, by signing a power of attorney with their brokers, authorizing the broker to trade on their behalf in Indian markets and third by trading in the markets themselves by using specialized applications offered by the brokers.

If you are an NRI (as per the conditions mentioned above), then you need to decide which  method do you want to choose for trading in India. Once you have decided that, let’s look at the various steps involved in actually opening a trading account:

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Step by Step Guide for NRI to Invest in Indian Stock Market

1. Open an NRE Account with an RBI Approved Bank

2. Getting PIS Approval from RBI

3. Opening a Demat Account in a Depository

4. Trading in the Markets

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1. Open an NRE Account with an RBI Approved Bank

As an NRI, you first need to pen a bank account in a bank which is approved by SEBI. Such a bank account which is opened by an NRI in India is called a No Resident External bank account, and it is repatriable which means that the amount in this account can be transferred to India at any time.

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2. Getting PIS Approval from RBI

PIS or Portfolio Investment Scheme is the scheme run by the Indian government with which as an NRI you will have to register yourself to be eligible to invest your money in the stock markets. This is like a registration with the government and seeking permission to invest money in Indian markets. The permission letter received from the RBI is then given to your stock broker who will then open you demat account.

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3. Opening a Demat Account in a Depository

In the third step, a stock broker will help you in opening your demat account with one of the central depositories. Various documents are required for an NRI to open his trading account and demat account with the broker such as Copy of PAN card, PIS permission letter, FEMA declaration, utility bills, address proof etc.

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4. Trading in the Markets

Once all the above mentioned steps are completed, you can start buying and selling stocks, shares and other instruments in the markets. However, there are certain banned sectors for NRIs as well as certain banned stocks for NRIs for each exchange. You should find out about them from your brokers before planning your trades.

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Restrictions on NRI Traders

There are some more additional restrictions as well as some extra charges which are imposed on you as an NRI trader which are listed below.

• You can only trade on delivery basis in the Indian stock markets. As per the rules set by SEBI, NRIs cannot do intraday trading in Indian stock markets.

• You can trade only in cash segment of the equity markets using your NRE account. If you wish to invest in the stock markets’ derivatives segment, then a different type of bank account called NRO account needs to be opened. NRE account cannot be used for trading in futures and options segment of the stock market.

• For trading in the F&O segment, you also need to open a separate account with a custodian who will handle the investment amount in the derivatives segment. The custodian will then provide you a custodian participant (CP) code to invest in the F&O markets.

• Only one CP Code can be allotted to one investor at a time.

• If you are taking a custodian code and opening a custodian account, the custodian will charge you a fixed fee for maintaining the same.

• There are various charges on a PIS account, such as PIC annual maintenance fee, PIS issuance fee and PIS reporting charges which are levied by the RBI approved bank on you , through your NRE or NRO account.

• Yu cannot buy more than 10 percent shares of any company through a NRE account.

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CONCLUSION:

If you can fulfill all these requirements and can easily operate all the necessary accounts for investing in Indian markets, then you would come under the category of NRI investor or a Foreign Portfolio Investor (FPI).

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