Introduction

Whether you are a Non-Resident Indian (NRI) or a resident, trading in the Indian stock market is a lucrative opportunity. The decision to invest in it is a major financial consideration. Usually, a resident can simply open a trading and demat account and start trading. However, this process is quite different for NRIs and involves a couple of more steps. Taking the time needed to understand the steps involved and the compliance requirements is necessary for smart and legal investing.

In this article, you will be introduced to the steps NRIs must follow to start investing in the Indian stock market.

Begin Investing with an NRI Demat Account

Steps to Invest in the Indian Stock Market

Understand the Regulatory Framework

NRI investments in India are governed by the guidelines established by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). According to their framework, NRIs not only require a special bank account but approval from the RBI through the Portfolio Investment Scheme (PIS) to open a demat account to start trading.

Open an NRI Bank Account

The first step to start investing in the Indian stock market for NRIs is to open an NRI bank account. The two types of accounts to choose from are Non-Resident Ordinary (NRO) account and Non-Resident External (NRE) account.

• An NRO account is not a fully repatriable account and holds India-derived income in Indian rupees.

• An NRE account is a repatriable account and can be used to hold and manage foreign-earned income in India.

The type of investments you want to make influences the account you need. For instance, an NRO/NRE account with PIS approval is needed to trade in equities, an NRO account for derivatives, and an NRE/NRO account for mutual funds and Initial Public Offerings (IPOs).

Obtain PIS Approval

The second step is to obtain a PIS approval from the RBI to begin investing in the secondary or stock markets. PIS was launched by the RBI to encourage NRIs to invest in the Indian stock market. PIS approval can be routed through RBI-designated banks. Upon submission of essential documents including but not restricted to identity and residence proof, photocopies of a valid passport and PAN card, proof of NRE or NRO account, etc, the request is forwarded to the RBI for approval.

Open a Demat Account

Once all the approvals are in place, it’s time to open a trading account with a broker of your choice to start investing in the stock market. Other than a trading account, you also need a demat account to hold the securities electronically.

Start Investing

After completing the above-mentioned steps, it’s time to start investing. While trading, some important things to keep in mind are:

• NRIs aren’t allowed to invest in certain public sectors such as the military, railways, or atomic energy.

• The total investment made by an NRI in an Indian company cannot exceed 10% of its paid-up capital.

• Short selling is prohibited for NRIs. This is trading of securities without taking delivery in your demat account.

• Apart from all this, as long as you are trading in the Indian stock market, it’s important to comply with taxation rules.

Conclusion

The process of investing in the Indian stock market for NRIs becomes clearer once you are aware of the steps to follow and the compliance requirements. By opening the right accounts, obtaining the needed permissions, staying updated about the RBI and FEMA’s guidelines, and working with authorised brokers, you can diversify your investment portfolio.

As with any other investment decision, it’s important to consider your financial goals and risk tolerance before beginning. So, when in doubt, it’s always better to reach out to a financial consultant or expert to make better financial decisions.

Keep Reading - Resident to NRI Demat Account Conversion | NRI Taxation | NRE, NRO & NRI Trading Accounts | NRI Investing Guide | NRI Demat Account vs Residential Demat Account | NRI Income Tax | NRI Multiple Accounts | Mutual Fund Taxation for NRIs