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NRI Trading In India (NRI Stock Investment Options)

Published on Saturday, June 22, 2019 by Chittorgarh.com Team | Modified on Monday, September 16, 2019

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NRI Trading In India (NRI Stock Investment Options)

NRI Trading in India is growing by leaps and bounds. The NRIs are allowed to invest in a variety of securities including stocks, Mutual Funds, Futures & Options, etc., in India. In this article, we will discuss on NRI trading in the stock markets, prerequisites for NRI trading and NRI trading rules and regulations in India.


NRI Trading in Stock Market - An Overview

Before we move into discussing NRI trading in India, let's quickly find out the definition of NRI in India or who the law treats as NRI in India.

NRI Definition & Meaning

Who is an NRI in India?

NRI is short form for Non-Resident Indians. NRIs refer to people with Indian origin or birth, who live outside India. Although, the legal definition is based on the tax status of a person residing or not residing in India.

As per section 6 of the Indian Tax Act 1961, any person with Indian origin who has stayed outside India for more than 182 days in a financial year or more than 365 days in the last four consecutive years with 60 days in that year is treated as an NRI for taxation purpose.

In simple words, NRI is a citizen of India who possesses an Indian passport but lives outside India. The income tax rates are different for resident of India and a non-resident Indian.


NRI Investment Options in India

NRI from the USA, Canada, UK, South Africa, and Middle Eastern countries can invest in a variety of financial instruments in India including:

  1. Equity or Stocks
  2. IPO
  3. NCDs
  4. Futures & Options
  5. Exchange-Traded Funds (ETF)
  6. Mutual Funds
  7. Bonds/Securities
  8. Certificate of Deposits
  9. National Pension Scheme (NPS)
  10. Fixed Deposits in Banks

Requirements for NRI Account in India

To invest or trade in India Stock Market, NRIs need following accounts:

  1. NRI Bank Account (NRE or NRO)
  2. Portfolio Investment Scheme Approval by RBI
  3. NRI Demat Account
  4. NRI Trading Account

The detail of each of these accounts is provided below:


1. Bank Account for NRIs

Investments in India can only be made in Indian Rupee. Hence, the first thing that an NRI needs to do is open a rupee account.

Two types of rupee accounts are permitted to be maintained by NRIs

  1. Non-Resident (External) Rupee Accounts (NRE)
  2. Ordinary Rupee Accounts (NRO).

NRE Vs NRO Bank Account

Funds in NRE Accounts are fully repatriable while the repatriability of the funds in NRO account is subject to certain conditions.

Repatriability meaning "the ability to move an asset from a foreign country to an investor's home country. Assets such as cash are repatriable; assets such as real estate are not."

a. NRO Account

An NRO (Non-Resident Ordinary) bank account is an ordinary saving bank account opened by NRIs to manage their income in India i.e. rental, dividend, interest etc. Income earned either in India or abroad can be deposited in an NRO account.

NRO account can be maintained in the nature of current, savings, recurring or fixed deposit account. It is suitable for the NRIs who want to deposit or invest in India from the earnings in India as well as abroad.

b. NRE Account

An NRE bank account is an external saving bank account opened for Non-resident Indians. NRE account can be opened without any approval as the funds for this account are transferred in freely convertible foreign currency. Income earned from the sources in India cannot be deposited in an NRE account.

Credits to the accounts should be in the form of remittance in foreign exchange from outside India, as well as other funds, which are eligible to be remitted outside India, in free foreign exchange.

This account can be maintained in the form of saving, current, recurring or fixed deposit account. It is suitable for the NRIs who want to deposit or invest their foreign earnings in India.


2. Portfolio Investment Scheme (PIS)

An NRI also needs approval under Portfolio Investment Scheme by RBI to invest in share market and other segments of India. PIS is a scheme under which an NRI can buy and sell stocks in the Indian stock exchanges. The PIS letter can be taken from any RBI authorized bank in India.


3. NRI Demat Account

First time NRI investors need to open a demat account with a registered broker. Various brokers like Zerodha, ICICI and Axis, etc., are available for NRI investors. Every broker offers different services and charges different fees and brokerage for the same. It is wise to check every detail of the broker before opening a demat account. To open an NRI demat account, you will need to submit the following documents-

  1. Indian address proof (not required in case of NRE)
  2. Foreign address proof (Mandatory both cases)
  3. PIS Letter (issued by RBI)
  4. PAN card
  5. Bank Account Statement/ Passbook Bank proof should indicate NRE/NRO saving a/c bank details
  6. If NRE or NRO is not mentioned (pre-printed) on the cheque, then bank verification letter is required.
  7. Photograph of investor
  8. Canceled bank account cheque

All the photocopy of the KYC document should be attested by the any of the entities: Notary Public, any Court, magistrate, judge, Local banker, Indian embassy, Consulate General of the country where NRI is residing.


4. NRI Trading Account

In addition to a demat account, an NRI also needs NRI trading account to trade in stock exchanges. The documents required to open NRI Trading account is same as NRI Demat account. Most brokers offer 2-in-1 account services wherein an NRI can open both trading & demat account at once. Some stockbrokers who are part of a banking group such as ICICI Direct, HDFC Securities and SBI Capital, etc., also offer 4-in-1 accounts for NRIs wherein PIS, NRE/NRO, Demat and Trading accounts are opened at once.


Key Guidelines for NRI Trading in India

  • NRI PIS (Portfolio Investment Scheme) account can only be opened with one bank.
  • Intraday trading is not allowed for NRIs. They can trade only in delivery-based equity transactions.
  • NRIs are not allowed BTST (Buy Today Sell Tomorrow) facility.
  • NRI cannot invest above 5 % of the paid-up capital of a company.
  • NRIs are only allowed to trade in certain scrips. The list of scrips is available on the RBI website.
  • NRIs are not allowed to trade using margin or exposure funding. They need to have 100% of funds at the time of buying.
  • Short selling is not allowed for NRIs. They need to hold 100% stocks in their NRI Demat Accounts while selling.
  • NRIs are required to make bill-to-bill payments. Adjustments of purchase against sale consideration cannot be done. Purchase and Sales are dealt with separately for payments/receipts.
  • IPOs/Mutual fund investments can be done through NON-PIS using NRE/NRO Savings bank account.
  • Futures & Options trading can be done through NRO NON-PIS i.e. through NRO Savings account.

FAQ's

  1. 1. Can an NRI invest in Indian Stock Market?

    Yes, NRIs can invest in India Stock Market. It's quite easy for NRIs to invest in Indian Stock Market.

    To invest in India, NRI needs the following accounts:

    • NRI Bank Account (NRE or NRO)

      This is where the money is withdrawn and deposited.

    • NRI Demat Account

      Demat account is to hold your securities in electronic format. Unlike most developed countries where equity holding is kept with the broker, in India, they are kept in a separate account called demat account. The demat account is a secured online account. You have to provide limited Power of Attorney (PoA) to your broker so that he can withdraw shares when you sell to give it to the buyer.

    • NRI Trading Account

      To place buy/sell orders.

    In additions, the NRI investor also needs the Portfolio Investment Scheme (PIS) Approval by RBI. Usually, the bank where you have an NRI bank account helps you get the PIS.

    Discuss this question

  2. 2. Can an NRI do online trading in India?

    Yes, NRIs are permitted to trade online in India. Many NRIs living around the world regularly invest and trade in India.

    It is slightly complicated as the government has strict rules for NRIs and foreign investment in general.

    Once all the accounts set up, the stock market investments are totally online. NRI customer can invest or trade from anywhere.

    If you recently become an NRI and use to trade in India before, remember that NRI trading is allowed only in limited segments and scripts. The brokerage for NRI accounts is higher than that for resident accounts.

    Here are a few key things to know about what an NRI could do and what he could not:

    • NRIs are allowed to buy/sell shares in Equity Delivery segment
    • Intraday trading is not allowed
    • Equity F&O trading is allowed.
    • NRIs can't trade in Currency and Commodities.
    • Order types like BTST or STBT are not permitted.

    Discuss this question

  3. 3. How to make payments for NRI stock trading in India?

    The payment for buying stocks on BSE & NSE on repatriation basis needs to be made through inward remittance of foreign exchange or out of funds held in an NRE/FCNR bank account.

    For shares purchased on non-repatriation basis, NRIs can use the funds in their NRO account.

    Discuss this question

  4. 4. How NRIs trading in India can remit Sale proceeds?

    If the stocks sold were held on repatriation basis, the sale proceeds, after deduction of taxes, will be credited to his NRE /FCNR(B)/NRO accounts whereas sale proceeds of stocks held in the non-repatriable basis are credited only to NRO accounts.

    Discuss this question

  5. 5. Can an NRI do intraday trading in India?

    No, NRIs are not permitted to do Intra-day trading in India Stock Market.

    Here is the list of what NRIs can do and what not:

    NRI available Investment Options in India

    Instruments

    NRI Permitted?

    Equity Delivery (Cash & Carry)

    Yes

    Equity Derivatives (Future & Options)

    Yes

    ETF

    Yes

    NCD / Bonds

    Yes

    IPO

    Yes

    Equity BTST (Buy Today Sell Tomorrow)

    No

    Short selling

    No

    Currency Derivatives

    No

    Commodity Derivatives

    No

    Discuss this question

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