Introduction
The Indian stock market has developed massively in recent years, attracting Foreign Direct Investment or FDI in large volumes. Consequently, many non-resident Indians (NRIs) have started taking interest.
If you wish to trade in the Indian stock market as an NRI, you can do so through a regulated network. You can buy Indian company shares through the stock exchanges on a repatriation or non-repatriation basis. You can also invest in mutual funds, fixed deposits, real estate, gold, etc. However, you must be aware of the rules and regulations applicable to you.
Open Demat Account and Start Trading!
​​​​​​​The rules for NRIs are different from the ones applying to resident Indians. Often, NRIs don’t know about the latest changes and are thus unable to take full advantage of their investment in India. This guide teaches you about the five most common trading mistakes NRIs must avoid.
Repatriable or non-repatriable NRI investment
NRIs must apply for the Portfolio Investment Scheme (PIS) to invest in the Indian share market. The Reserve Bank of India (RBI) designates authorised dealers to help with this process. You must reach out to a designated dealer to acquire the PIS.
Additionally, you must have a Demat account. This account stores the financial securities electronically. You can open a Demat account after you obtain the PIS license.
There are two types of NRI Demat accounts - the NRO Demat account and the NRE Demat account. The former is a Non-Repatriable account and doesn’t allow you to transfer all the money abroad. The NRE account is external and can be used to keep foreign earnings. Thus, it is Repatriable.
Five common trading mistakes NRIs should avoid
If you’re tempted to invest in India and reap the benefits of its booming economy, remember the following points to ensure your hard-earned money is invested judiciously.
1. Continuing to use resident accounts
You cannot use your resident accounts for trading if you’re now an NRI. It is illegal, and the RBI mandates you to change your bank and Demat account and update your KYC details. You must convert the savings account into an NRO account and the Demat account to an NRO Demat account to continue using it after a change in resident status.
2. Depending on real estate investment excessively
Many NRIs prefer the old-school practice of investing in safe options and setting aside an excessive amount of money in real estate. Although real estate investments offer security and satisfaction, you must balance your investment portfolio. Consider your long-term financial goals, risk tolerance, and current financial conditions before making investment decisions. Overinvestment in real estate can result in high maintenance costs, low rental yields, and a complicated sales process.
3. Ignoring tax implications
There are many rules for taxation on NRI trades. You must understand all the norms related to capital gains, Tax Deducted at Source (TDS), etc. These rules are different from tax implications for Indian residents. Moreover, as an NRI, you often deposit taxes in India and the country of your residence. Please check the countries listed in the Double Taxation Avoidance Agreement (DTAA) to avoid paying double tax.
4. Making investment decisions without professional assistance
Many investors, including NRIs, commit this mistake. You must have consulted friends and relatives before making investment decisions. However, it is essential to make informed decisions to avoid potential risks and earn desired returns. Take the guidance of certified investment professionals who track market movements and understand the rules of both India and the country you reside in.
5. Not reviewing the changes in investments
Before you go abroad, always review your investments. It is because, once you shift, you will not be able to enjoy the benefits and retain investments as before. For instance, when your status changes to NRI, you are not eligible to hold postal or savings scheme investments. NSCs are also assumed to be encashed.
Conclusion
There are many factors NRIs must keep in mind for efficient trading decisions and financial management. To start, you need to open a Demat account online or offline. Make sure the account fulfils your requirements and specifications. Moreover, identify certified investment professionals who understand the features and intricacies of the share market. A trusted and renowned brokerage platform can also assist with understanding the applicable taxation rules and regulations.
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