How Can NRIs Invest In The Indian Capital Market?

India is one of the fastest-growing economies in the world, making it an attractive investment destination for NRIs. To invest in the Indian stock market, NRIs need to open a demat account. A demat account is a digital repository for holding securities such as shares, bonds, and mutual funds.

NRI is an Indian citizen or person of Indian Origin (PIO) who lives outside India for more than 182 days in a financial year, or for more than 60 days in the previous year and 365 days or more during the four years immediately preceding the previous year.

How NRI can invest in Indian capital markets?

As per the latest guidelines, NRIs are no longer required to obtain a PIS registration for Non-Resident Ordinary (NRO) accounts. NRO accounts are treated as investments by residents.

This means that NRIs can invest in the Indian stock market through their NRO accounts without having to obtain a PIS registration. However, NRIs will need to open a demat account with a depository participant (DP) in order to hold shares purchased through their NRO accounts.

There are two main types of NRI demat accounts:

1. NRE Demat Account: This account is linked to an NRE (Non-Resident External) bank account and is used for managing funds earned abroad. It’s fully repatriable, meaning you can transfer the money abroad, and it’s often referred to as a Repatriable Demat Account. You can transfer the proceeds from the sale of securities abroad.
2. NRO Demat Account: This account is linked to an NRO (Non-Resident Ordinary) bank account and is used for managing funds earned in India. It’s considered a Non-repatriable Demat Account because not all money can be transferred abroad. The principal amount of investments can be repatriated after paying taxes, and the interest earned on this account is repatriable after TDS (Tax Deducted at Source) is deducted.

Are NRIs allowed to trade in the Indian stock market?

Yes, NRIs are allowed to trade in the Indian stock market, but there are some restrictions. For example, NRIs are not allowed to engage in intraday trading or short selling. NRIs can only trade on a delivery basis. NRIs are allowed to trade in Equity delivery and Futures and options (F&O) segments of the Indian stock market: However, NRIs cannot trade in currency derivatives or commodities.

Read: What is Short Selling in Stock Market?

There are a few reasons why NRIs are not allowed to trade intraday. One reason is to protect NRIs from the risks associated with intraday trading, such as volatility and margin calls. Another reason is to prevent NRIs from manipulating the stock market. Despite the restrictions, there are still a number of ways for NRIs to invest in the Indian stock market. NRIs can invest in equity delivery, F&O, and mutual funds. NRIs can also invest in IPOs (initial public offerings) and ETFs (exchange-traded funds).

Benefits of an NRI Demat Account:

1. Convenient Global Access: NRIs can easily invest in the Indian stock market from anywhere in the world.
2. Streamlined Transactions: Transactions reflect promptly in the demat account, reducing physical documentation hassles.
3. Efficient Trading: NRI demat accounts facilitate quick and efficient trading.
4. Reduced Risk: Minimized risk of forgery, loss of physical documents, and late delivery.
5. Small Investments: NRI demat accounts can hold even a single share.
6. Diverse Investments: NRIs can invest in shares, convertible debentures, ETFs, mutual funds, and more.

When choosing a demat account as an NRI, consider the following key factors:

1. Opting for a SEBI-registered intermediary depository for easy account opening.
2. Check for low expenses and maintenance charges from brokers.
3. Ensure a seamless link between your bank account and demat account for convenient online trading via websites or apps.
4. Look for a depository participant that offers analytics on profitability, diversification, valuation, and actionable insights.
5. Seek additional services that set a depository or broker apart from others to make an informed decision.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.