NRI Trading in India - Account, Rules, Eligibility

Here are the steps to facilitate trading by NRIs in India:

• Open NRE/NRO Bank Account
• Obtain a PIS letter from the banks (to invest on repatriation basis)
• Open a trading account
• Open a Demat account

Open NRE/NRO Account:

The NRI has to open NRE or NRO savings bank account with a bank. Based on the fund remittance and purpose of opening the NRE/NRO account, you can open the Repatriable/Non-repatriable account, respectively.

Obtain a PIS letter from the banks:

After opening an NRI Bank Account, the bank will provide a PIS letter approved from RBI to invest in Indian stocks. In the case of the NRO account, you are not required to get approval from RBI for trading as RBI has waived off the PIS requirement for the NRO mode of transactions. However, the broker with whom you are trading should offer to trade without PIS else PIS would still be required.

Open a Demat & trading account:

After opening a savings account and get approval from RBI for PIS, you can open Demat and trading accounts with the stockbrokers. While opening Demat & trading accounts with the broker, you have to provide a PIS letter to link it with the NRI savings account.

Note:

• NRIs are allowed to do equity futures and options trading only on non-repatriation basis
• NRIs are permitted to do only delivery-based trading and cannot do intraday trading or short selling.

Here is the process for NRIs to trade in India:

• Transfer funds from your NRI savings account to the PIS account.
• The amount is updated in the terminal account when the bank informs the broker about it.
• When you place a buy order, your account is automatically debited to purchase shares. Further, this amount is credited to the broker's account.
• When you place a sell order at the end of the day, your PIS account gets credited with the amount post deduction of TDS.
• Two contract notes for buy and sell transactions are sent at the end of the day.

No, NRIs are not permitted by SEBI to do intra-day trading in the Indian Stock Market. NRI cannot buy and sell the stocks the same day at BSE and NSE as Equity Intra-day segment is not enabled in the NRI trading account.

NRIs can invest in the stock market using Equity Delivery-based Trading, Equity F&O, and Currency F&O.

NRIs are also not permitted to trade in Commodities at MCX.

An NRI can have a trading account in India to invest in Indian stock markets.

An NRI should open an NRI Trading Account, NRI Demat Account, and NRI Bank Account to make investments in the capacity of an NRI. An NRI cannot continue with the existing resident trading account in India and is required to be closed to avoid any issues.

An NRI is required to open an NRE or NRO trading account linked to NRE PIS or NRO PIS/ Non-PIS bank and Demat accounts to trade on repatriation and non-repatriation basis respectively.

An NRI is required to maintain an NRI Trading Account,NRI Demat Account, and an NRI Bank Account to trade and invest in Indian stock markets. In addition to this, an NRI needs a PIS approval from RBI to trade on a repatriation basis. With recent changes in RBI rules, the PIS approval to trade on a non-repatriation basis has been waived off.

The NRI accounts are further classified as Non-Resident External (NRE) account or Non-Resident Ordinary (NRO) accounts based on the repatriability. An NRI is required to open an NRE to trade with repatriation benefits and NRO account to trade without repatriation benefits.

In addition to the above, an NRI is required to open an account with the custodian to trade in derivatives. However, if the broker is providing the clearing services to the NRI clients, an NRI is not required to open a separate custodian account. The broker/custodian can apply for the custodial participant (CP Code) required for F&O trading.

Summary of accounts required for NRI Trading:

The RBI caution list and RBI ban list are available on the RBI website and are updated as and when the foreign investments reach the trigger limit or the ceiling.

The RBI caution list is updated and notified to all authorized dealers when the total holdings of Foreigner Institutional Investors (FII)/NRI reaches 2% below the applicable limit. Any further purchases are subject to RBI approval.

The ban list is updated d when the total holdings of FII/NRIs reach the statutory limit and no further purchases are allowed.

Once security comes under a caution list, further purchases are subject to RBI approval which is given on a first come first serve basis. Hence an NRI may or may not get RBI approval to buy the scrips under caution list based on availability.

No, once the securities are placed in the ban list no further purchases are allowed unless the security comes out from the ban list.

Short selling is selling of a security that is not owned by an investor but is borrowed from the broker.

An investor may think that the price of a stock may fall within a week hence he would borrow the stock from the broker with a promise to return within the agreed timeframe. If the price of the stock drops within a week the investor would make a profit by buying it from the market at a lower price and return the stock to the broker. However, if the price of the stock goes against expectations and it increases, the investor would have to buy the stock at a higher price and suffer loss to fulfill his stock obligation.

Short selling works well in the bearish market.

NRIs are prohibited from short selling as per regulations.

Nidhi Company is like a non-banking financial company that is listed as a public limited company with the sole purpose of accepting deposits and lending funds to its members.

Government dated securities are long term instruments issued by the government for mobilising funds. These securities carry either a fixed or floating rate of interest (known as coupon rate) which is paid on the face value at regular intervals. The tenure for these instruments generally ranges between 5 years to 40 years.

Treasury bills popularly known as T-bills short term instruments issued by the Government of India with tenure of 1 year or lesser. There is no interest payment on these bills. T-bills are issued at discount and redeemed at face value on maturity.

A mutual fund is a trust that is managed by a professional and expert fund manager that pools money from various investors with a common objective and invest in different asset classes.

PSUs are state-owned enterprises that are owned by either Central, State, or both. The government stake in such companies is more than 50%.

Infrastructure Debt Funds are debt funds meant to promote funding in infrastructure sector.

Perpetual debt instruments are debt funds with no maturity date. The issuer keeps paying interest forever till either the company dissolves, closes down, or till the investor holds the bond.

The aggregate ceiling of holding in Perpetual Debt Instruments should not exceed 24 percent of each issue and investment by a single NRI should not exceed 5 percent of each issue.

NPS is a retirement saving scheme introduced by the government of India to provide security in old age. NPS is governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA). The accumulated saving in NPS is repatriable.

Chit fund is a saving and borrowing tool run by registered chit fund companies under Chit Fund Act 1982. In chit funds, a group of people agree to contribute a specific sum of money for a specific period of time on monthly basis which is then given to one person as loan on lottery or auction basis after deduction of the chit fund commission.

No. NRI is not allowed to place an Intraday order. They are only allowed to trade in Indian stock markets on a delivery basis.

Every time while transacting the shares, they have to take or give delivery of shares because even short selling is not allowed.

Note that NRI are permitted to trading in stock and currency derivatives at BSE and NSE.