Stock markets in India are booming. There seems to be no limit to which they can rise .Everyday a new high is reached. One has been waiting on the sidelines all this while and jumping on the stock market bandwagon is all one cares. India is no longer a part of the fragile five. It is a strong economy among the BRICS and invites a huge FII investment.
Can NRI’s be far behind in wanting to jump into the stock market and take their share of the samosa? But are NRI’s permitted to invest in the stock market in India? Remember where there is a will a way follows.
What is the route for an NRI to invest in the Indian stock market?
- Investing in the Indian stock market as an ordinary resident Indian is a hassle free process. All one needs to do is open a demat and a trading account and complete the necessary documentation and the KYC (Know your client ) norms.
- For an NRI things are somewhat different. If one is an Indian citizen and is present in India for less than 182 days during a fiscal then in most cases he is considered an NRI.
- If one is an Indian citizen ,he needs to intimate his bank while leaving abroad as an NRI and redesignate/convert his account to a NRO (Non Resident Ordinary) account. One can repatriate up to 1 Million Dollars abroad using the NRO route.
- This account is maintained in Indian Rupees. The account holder’s dues in India such as rent collected, dividends obtained, any interest and pension obtained, funds obtained from sale of immovable property, and also funds received from sale of inherited property are remitted through this account.
- One can open an NRE (Non Resident External) account and can repatriate funds from Abroad to India. In this account at the time of opening of the bank account, foreign currency is deposited which may be in US Dollars or Euros. The bank uses the current exchange rates to convert this to Rupees.
- One then needs to open an NRO demat account and transfer the existing shares from your earlier demat account into this account. The earlier demat account is then closed. One can then sell/hold or even buy into new shares in the Indian stock market.
- Portfolio investment scheme (PIS) is a facility provided by the RBI so that an NRI can purchase shares in India. The NRI has to submit a copy of his passport as well as proof of residence in the country he resides. One can open an account under this scheme only in a designated bank and all investments are made only to this bank. This means that one is at the mercy of the investment advisor at this branch as he can open only a single account. One can invest any amount into the share market using this facility but one cannot take up more than 10% of the paid up capital of a Private limited Company or 20% of a public Company.
- One then requires to fill up the KYC (Know your client) norms with in person verification. For this one will need to travel to India.
What are the hurdles an NRI faces while investing in the Indian stock market?
- If one is an NRI he cannot indulge in speculation or intraday (day trading) in the stock market. All trades have to be settled on a delivery basis and open positions are not permitted.
- An NRI might be in a different time zone from India which means the time difference might affect his decisions. One can give Power of attorney (POA) to an Indian relative who is an Indian citizen to manage the account on his behalf. The relative is not permitted to remit funds abroad.
- An NRI is expected to do an in-person verification for his KYC (Know your client) norms for which he has to travel to India.
How can a US based NRI invest in India?
- Indian rules and regulations do not restrict NRI’s from the USA or Canada to invest in the Indian stock markets. However the SEC (Securities and Exchange Commission) the stock market regulatory agency in the US prevents transactions with brokers who are not registered with them mainly foreign brokers.
- This is done with the intention to protect the interest of US citizens from fraud that might occur abroad.
- But there is a way to get round this. One can open a trading account when he/she visits India. In person verification needs to be done for the KYC (Know Your Client) norms. One needs to maintain a copy of the passport and the visa with the broker’s office.
- No solicitation is required on the part of the broker as the entire operation is conducted on Indian shores.
- One cannot use the online platform /wrap of the broker as the SEC (Securities and Exchange Commission) regards these internet based services as the same as taking telephonic services from a broker. The Indian broker being aware of this does not offer these services to the client.
- One would have a trader assigned who transacts on his behalf. The trader moves sums of money from one’s NRE/NRO account to the PINS (Portfolio Investment NRI Scheme) and executes trades (buy/sell) transactions on one’s behalf.
- One can then view his holdings in the demat account by logging into the trading portal and keep an eye on them.
There is a famous saying “ Buy a business, don’t rent stocks”. If one is an NRI he must realize that just because of the stock market is rising he must not purchase any stock he sees. One must do a due diligence check and make a thorough study of the stocks he purchases. Remember purchase quality blue chip stocks and hold them for a sufficient period to profit from the market.