Over the past few years, Non-Resident Indians (NRIs) have also shown an inclination towards the Indian stock market. NRIs also have access to a lot of rights in India like resident citizens, but obviously they have to go through a more regulated framework and greater compliance. But trading in the stock market is no longer an exception to NRIs; NRI investment in India is not at all an uphill battle, and one can easily invest in the Indian stock market according to the rules set by the Foreign Exchange Management Act (FEMA).
What are the Ways to Invest in the Indian Equities for NRIs?
It is often asked that “how can NRI invest in Indian Market?” The answer is simple – yes they can!; by following some proper steps, an NRI can start investing in the Indian stock market.
Step 1. In order to start the investment journey in Indian Stock markets, an NRI firstly need to have an operational NRE/NRO bank account with a reputed bank. Reputed bank here implies that the bank or financial institution should be approved by the Reserve Bank of India for carrying forth investments in the Indian Stock Market.
Step 2: Your next step would be seeking permission from the bank in order to carry out investments. This is known as obtaining a PIS Portfolio Investment Scheme ) approval. An NRI can invest in the Indian stock market by purchasing the shares through the PIS. This PIS scheme is a part of the Reserve Bank of India that enables NRIs to purchase shares or convertible debentures from the stock market through a bank account with a nominated branch.
Step 3: Once this step is completed, your next step would be to get a Demat account opened under your name. This would help you to hold and trade your stocks with the specific depositary participant. You can also contact an authorized broker to make your work more easy and convenient. The broker with whom you get yourself registered will further help you in carrying forth your selling and buying of stocks. You can also do your own research about the companies you like and seek advice from your broker. For example, if you see potential in the banking sector you can gather any bank’s share price information such as HDFC share price if you see growth in Indian MNCs like ITC, you can check ITC share price and discuss it with your broker for advice.
Important Accounts NRIs Need to Open
It is highly recommended for NRIs to open three accounts in India, viz. The Non-Resident External Rupee (NRE) Account, Non-Resident Ordinary Rupee (NRO) Account, or Foreign Currency Non-Resident Account (FCNR)-with an Indian bank.
- An NRE account helps you to send back money to the country of your residence.
- The NRO account would help you with that country’s residence that is the Indian rupee (INR).
- In the FCNR account, you can hold your funds in foreign currency.
The amount that you want to invest in the Indian Stock market would get directly debited from your NRO/NRE account. The same can also be received by the way of inward remittances that can be routed through normal banking channels. You can also do the transaction by sending a rupee draft/cheque that is issued by an exchange house abroad which would be drawn on its correspondent bank in India.
If you make your investments through drafts or cheques, a foreign inward remittance certificate (FIRC) is needed to be attached along with your application. A letter issued from the bank that confirms the source of funds will also work in the same manner.
Along with that the documents such as a copy of passport and pan card, an overseas address is also to be submitted, be it permanent address or correspondence.
NRIs can also track their investments by giving Power of Attorney (POA) to someone residing in India who can take decisions on their behalf. The one who has gained PoA has to produce the original PoA or an attested copy of the same to the fund house in order to start operating on behalf of the NRI.
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Key Points to Keep in Mind
- Always opt for the delivery based transaction as intraday transactions are not permitted for NRIs.
- It is recommended to avoid investment in prohibited sectors.
- Make sure to reconcile the Demat account balance with the bank balance.
- Banks levy the following charges for a PIS account like PIS AMC fee, PIS issuance fee, and PIS reporting charges.
By adhering to these simple NRI investment in India rules, one can trade in the Indian stock market in a seamless manner and reap the benefits of a growing economy.
On a Closing Note
India is one of the world’s largest recipient of international remittances. This shows that most NRIs are still deeply connected to their roots. Many people ask ”why should NRI invest in India?” – the answer to this question lies in the fact that NRI investment in India is a great way to create wealth while helping the country’s economy at the same time.