Investing in the Indian stock market from abroad can be exciting. However, the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) have put rules in place to protect investors and ensure fair markets. As a Non‑Resident Indian (NRI), understanding these rules will help you avoid common mistakes and make the most of your demat and trading account.

Kickstart Investing through an NRI Demat Account

No Intraday Trading in Equity

When you buy and sell a stock on the same day, you are doing an intraday trade. NRIs are not allowed to do intraday trading in equity shares. All equity transactions must be delivery‑based, meaning you take delivery of the shares in your demat account and hold them for more than a day. Similarly, Sell‑Today‑Buy‑Tomorrow (STBT) and Buy‑Today‑Sell‑Tomorrow (BTST) trades are off limits.

This rule exists because intraday trading is considered speculative and can create excess volatility. If you are an NRI, avoid quick trades and instead focus on long‑term or short‑term investments where you actually own the shares.

Limited BTST & Short Selling

Short selling (selling shares you do not own in expectation of buying them back later at a lower price) and BTST trades are not permitted for NRIs. Because you must take delivery of shares before selling them, short‑term speculation is effectively restricted.

Patience is key—plan your trades ahead of time and avoid last‑minute buy/sell strategies that would violate these rules.

Futures & Options Need a Special Setup

While equity intraday trading is prohibited, trading in Futures & Options (F&O) is allowed—but only under specific conditions:

• You must open an NRO (Non‑Resident Ordinary) Non‑PIS trading account. F&O trading is not allowed through an NRE (Non‑Resident External) PIS account.

• A custodian must be appointed to clear and settle your F&O trades. Your broker will help you obtain a Custodian Participant (CP) code for this purpose.

• NRIs cannot pledge securities as collateral to trade F&O positions. This means you need cash margins and must square off any intraday F&O positions by the end of the day.

If you only have an NRE account mapped to your trading account, you can trade in equity delivery but not in F&O. Mapping an NRO account allows you to choose between equity delivery and F&O—however, both segments cannot be activated simultaneously with a single account. Some brokers allow you to link both NRE and NRO accounts by submitting two separate account opening forms.

No Access to Currency & Commodity Markets

NRIs cannot trade in currency or commodity derivatives on Indian exchanges. This restriction applies to currency futures, currency options and commodities such as gold or silver. Similarly, investing in currency or commodity‑based Exchange Traded Funds (ETFs) is not allowed.

Focus instead on permitted segments: equity delivery and, if eligible, F&O based on stocks or indices.

Product Restrictions: SGBs & Certain Sectors

A few investment products are completely off limits:

• Sovereign Gold Bonds (SGBs) – NRIs cannot purchase new SGBs. If you already own SGB units from your resident days, you may hold or sell them but cannot buy more.

• Restricted Sectors – Some industries—such as atomic energy, railways and gambling/chit funds—are closed to foreign investors. Your broker’s system will automatically block orders in these sectors.

Being aware of these exclusions prevents accidental violations.

Mutual Fund & ETF Limitations for US/Canada NRIs

Most NRIs can invest in Indian mutual funds and domestic ETFs. However, investors from the United States and Canada face extra compliance requirements under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). Many asset management companies do not accept investments from these regions through online platforms.

If you reside in the US or Canada, check with your broker or the fund house to see which schemes are available. You can still invest in equity index, gold or debt ETFs but cannot invest in currency or commodity‑linked ETFs.

Investment Limits & Account Mapping

There are caps on how much all NRIs together can invest in a single company. Currently, aggregate NRI investments cannot exceed 10 % of the paid‑up capital of an Indian company. This limit can be increased to 24 % if the company’s shareholders pass a special resolution. Brokerage systems automatically block orders that would breach these thresholds.

Choosing the right bank account to link with your trading account is also important:

• NRE (Non‑Resident External) Account – Permits you to invest on a repatriation basis, meaning profits and principal can be sent abroad. Only equity delivery trades are allowed when an NRE account is mapped to your trading account.

• NRO (Non‑Resident Ordinary) Account – Funds remain non‑repatriable (up to USD 1 million per financial year). Mapping an NRO account enables either equity delivery or F&O trading.

Some NRIs hold both accounts and open two separate trading links—one for equity delivery using their NRE account and another for F&O using their NRO account.

How to Stay Compliant & Avoid Mistakes

1. Open the Correct Account: Choose a reputable broker such as Motilal Oswal and specify whether you want equity delivery or F&O access. Provide all required documentation, including your PAN and KYC forms.

2. Understand the CP Code Requirement: If you want to trade F&O, appoint a custodian through your broker and obtain a CP code. Without this code, your orders will be rejected.

3. Avoid Prohibited Trades: Do not attempt intraday equity trades, short selling, BTST/STBT orders or currency/commodity trades. Use a delivery‑based approach for equities.

4. Check Product Eligibility: Verify whether SGBs, certain ETFsor mutual funds are available to you, especially if you live in the US or Canada.

5. Monitor Investment Limits: Be aware of sectoral caps and aggregate NRI investment limits. The brokerage platform usually enforces these, but knowing them helps you plan your investment strategy.

6. Keep Records Updated: Inform your broker if your residential status changes. Converting a resident account to an NRI account is mandatory when you move abroad.

Final Thoughts

Trading as an NRI comes with a few extra rules. By sticking to delivery‑based trades, using the right account type and partnering with a trusted broker, you can enjoy the benefits of India’s vibrant stock market without running afoul of regulations. With clear awareness of what’s allowed and what isn’t, you’re well on your way to building a compliant and profitable investment portfolio from anywhere in the world.

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