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How Does NRIs Trade In The Indian Stock Markets?

In many ways, non-resident Indians (NRIs) have rights in India like resident Indians. Of course, since they are located abroad, they are required to go through a more regulated framework and greater compliance but investing in the markets is perfectly possible for NRIs too. Let us look at how NRI can trade in Indian stock market. Let us also look at the ideal NRI investment in India and also the best NRI demat account and trading accounts.

Three ways NRIs can invest in Indian equities

As a non-resident Indian, there are three ways to route and manage your investments in the Indian stock markets.

Since the NRI will be based abroad, they can appoint a mandate holder to handle their NRE / NRO accounts in India. The NRI must give an “Appointment of Mandate Holder” application to the bank with requisite documents and the specimen signature of the mandate holder. This is the first step.

Then the NRI can also appoint a power of attorney (POA) in India for actually executing and redeeming the investments in India. A POA agreement will have to be signed on a stamp paper and notarized before it can be submitted as a mandate for investing.

Thanks to the spread of internet trading, brokers are also permitted to offer online trading facilities for their NRI clients subject to meeting all the required compliance and KYC guidelines. Most brokers are offering this facility to NRIs now.

NRIs can invest on Repatriable or non-Repatriable basis

The NRI can invest in India through the NRE account or the NRO account. While the NRE account is an external account and hence Repatriable, the NRO account is a resident account and hence the funds are non-Repatriable beyond the limit of $1 million per year. Once bank account is in place, the next step is to get the PINS approval from RBI.

What is the PINS approval from RBI?

Once the bank account opening formalities are done, the next step for the NRI is to open a PINS account. The Portfolio Investment Scheme (PINS) is a permission letter given by the RBI to trade in Indian equities and the NRI can open trading account and demat account with a broker. This PINS letter will be managed by the bank where the NRI’s bank account is located. Once the requisite documents are submitted and the PINS letter is obtained, the NRI is ready to open the trading cum demat account with a broker.
 
Documentation for opening trading cum demat account

For opening the trading cum demat account, the NRI is required to submit the following key documents. The broker can process the application form for trading and demat only after these documents are submitted and verified.

Copy of PAN card along with the PINS letter and the FEMA declaration. The FEMA Declaration is important for verifying source of funds.

NRI will be required to submit copies of Indian passport, foreign passport copy (if any), PIO card, OCI card etc. Photocopies can be notarized by the embassy officials.

The NRI will have to submit an overseas address proof as well as a cancelled bank cheque of the overseas bank account for the bank records.

In case, the NRI has an NRO account and an NRE account, they it must be specified which bank account must be mapped for trading and demat. Only 1 account can be mapped to one trading and demat account.

As part of the PMLA, the NRI will also be required to sign and execute a FATCA declaration before the trading and demat account can be opened.

Actual trading process for the NRI

The actual buying and selling process is the same for the resident Indians and for NRIs. However, there are a few things to remember. For example, NRIs are barred from investing in certain stocks and the NRI must check with the broker on this front. Any violation of this negative list will attract steep penalties. Once the NRI allocates funds to the broker from the NRE or NRO account, the trading account gets credited. When the actual transaction is done, the broker sends the contract note simultaneously to the NRI and to the PINS bank for authorizing debits. The PINS bank will then debit or credit the PINS account of the NRI accordingly.

Some key aspects that NRIs must remember while trading Indian equities

Taxation of short term and long term gains of equities will b the same as for resident Indians. However, in case of investments in mutual funds, the NRI will get the dividend only after the TDS is deducted.

While trading in equities can be down through NRE or NRO account, the F&O trading can be done by NRIs only through NRO accounts that are non-Repatriable. Also, NRIs will have to get a Custodial Participant (CP) code before trading in F&O.

NRIs can only trade on delivery basis in Indian equities. So, intraday trading, BTST trading, STBT trading and even short selling is not open to NRIs.

Currently, NRIs have been permitted to trade in Indian equities and F&O but they are barred from trading in currency derivatives and in commodities.

Conclusion

Navigating the Indian stock market offers both opportunities and challenges for non-resident Indians (NRIs). While residing abroad, NRIs can still actively participate in India's vibrant equities market through various channels, albeit with additional regulatory requirements and compliance procedures.

Three primary avenues exist for NRIs to engage with Indian equities:

  1. NRIs can appoint a mandate holder to manage their NRE or NRO accounts in India, facilitating investment management remotely.
  2. They can designate a power of attorney (POA) in India to execute investment transactions on their behalf.
  3. With the advent of online trading platforms, brokers extend online trading facilities to NRIs, subject to compliance with regulatory guidelines.

NRIs can invest in Indian equities on a repatriable or non-repatriable basis, utilizing either NRE or NRO accounts, each offering distinct repatriation benefits. To initiate trading activities, NRIs must obtain approval for the Portfolio Investment Scheme (PINS) from the Reserve Bank of India (RBI). This approval enables them to open trading and demat accounts with authorized brokers, streamlining the investment process.

Documentary requirements for opening trading cum demat accounts include PAN card copies, FEMA declarations, proof of overseas residence, and bank account details. Compliance with the Prevention of Money Laundering Act (PMLA) necessitates executing a FATCA declaration, reinforcing regulatory compliance standards.

While the trading process for NRIs mirrors that of resident Indians, certain restrictions apply. NRIs cannot invest in prohibited stocks and must adhere to specific trading guidelines. Additionally, taxation policies for equities investments align with those for resident Indians, with variations in mutual fund dividend taxation.

However, certain trading activities, such as intraday trading, short selling, and derivatives trading, are restricted for NRIs. Furthermore, while NRIs can engage in equities and futures trading, participation in currency derivatives and commodities markets is prohibited.

So, NRIs possess avenues to actively participate in the Indian stock market actively, leveraging technology and regulatory frameworks. By understanding the nuances of NRI trading accounts, complying with regulatory requirements, and adhering to trading guidelines, NRIs can effectively navigate the Indian equities landscape and capitalize on investment opportunities.

 

 

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