Investing & Trading in India - The Rules NRIs Should Know

Investing & Trading in India - The Rules NRIs Should Know

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Key Takeaways

  • As an NRI, you can invest in the Indian Markets
  • You can invest in Equities and take delivery of your shares, bonds, etc.
  • You cannot participate in Intra-day trading as per RBI Norms
  • Trades may be conducted through Demat and Trading Accounts linked to NRE and NRO accounts
  • You must submit copies of FEMA and FATCA declarations before investing

As an NRI, you may have noticed the steady rise and may even be tempted to invest in the Indian Stock Market. Questions like can NRIs buy stocks in India or engage in intra-day trading may have crossed your mind. Here we decode all the rules surrounding NRI stock market investments in India.

How can NRIs trade in the Indian Stock Markets?

The answer to the question, can NRIs invest in shares in India, is yes, they can. As an NRI, you can invest in shares, bonds, debenture, and other such securities trading on the Indian stock exchanges. However, you are obligated to adhere to a more regulated framework for compliance to invest in Indian markets. Like resident Indians, you need to open a trading account to conduct your share market transactions. You also need a DEMAT account to hold your securities in electronic form. Your DEMAT and trading accounts should be linked to your Portfolio Investment Scheme or PIS-enabled NRE or NRO account.

Can NRIs do intraday trading in India

When it comes to NRI intraday trading in India, the rules are slightly different than those associated with NRI stock investments in India. Investing implies taking delivery of the securities, whereas intraday trading requires you to square off your positions on the same trading day. Intra-day trading specifically involves speculation, which creates market volatility and increases investors' risks.

To answer the question, can NRIs do intraday trading in India; no, they cannot. As per an RBI mandate, you, as an NRI, you may only trade on delivery basis in Indian equities. You may, however, trade intraday in the F&O segment, so long as you square off your positions without indulging in speculative trades. The trades may be conducted through your non-repatriable rupee accounts, subject to SEBI-prescribed limits.

Three ways in which NRIs can invest in the Indian Equity Market

  1. By appointing a mandate holder

    Since you will be based abroad, you may appoint a mandate holder to manage your NRO or NRE account in India. You must provide the bank with an application appointing the mandate holder and the necessary documents and signature of the person appointed as the mandate holder.
  2. By appointing a power of attorney

    Another way NRI stock investment in India is permitted involves appointing a Power of Attorney (POA). The POA-holder should be an Indian resident. The POA agreement should be created on a stamp paper, duly notarized, and submitted to the bank, allowing the POA holder to execute and redeem investments on your behalf.
  3. Through a brokerage firm

    You may also indulge in NRI stock trading in India through brokers. The RBI allows brokerage firms to offer stock trading services and facilities to NRIs, provided they meet the required KYC and compliance guidelines.

Options Available for NRI Investments

Having answered the question 'can NRIs buy stocks in India', let's look at the investment options available to them.

  • NRE Accounts: You can open a Non-Resident External (Rupee) account, wherein you can deposit your foreign currencies securely. You can easily transfer money to the account and get competitive interest rates on your savings.
  • NRO Accounts: If you have income sources and expenses in India, a Non-Resident Ordinary (Rupee) account is a great option. You can open NRO savings, current, or recurring deposit accounts.
  • FCNR: Do you want to retain your money in foreign currency? Then consider opening an FCNR account. The principal amount deposited and the interest earned on deposits is fully repatriable.
  • Mutual Funds: NRIs can use their NRE, NRO, and FCNR accounts to invest in professionally managed mutual fund schemes in India. You should research the AMCs and agencies permitting mutual investments for NRIs before investing.
  • Real Estate: NRIs may also invest in commercial and residential real estate (other than agricultural land and plantations) in India. This is a great way to participate in India's rich and booming real estate market.
  • Direct Equity: As mentioned above, NRI stock investments in India are permitted in the form of direct equity. Investments can be conducted via DEMAT and trading accounts linked to your PIS-enabled NRE or NRO bank account.
  • Bonds and Non-convertible debentures: Besides stocks and mutual funds, you may invest in bonds and non-convertible debentures through your NRE and NRO accounts. This fixed-deposit resembling long-term investments offer higher returns rates than regular FDs.
  • Government Securities: For NRIs, the RBI has introduced a designated medium called the Fully Accessible Route or FAR, that enables them to invest in some specific government securities, which could be fixed or floating rate government bonds or capital index bonds.
  • Certificates of Deposits: You may also opt for Certificates of Deposits, ranging in tenures of 7 days to 1 year. These short term instruments are negotiable, and your deposit amount is repaid on maturity, along with fixed returns.

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Documents required for opening trading cum DEMAT account

You need to submit the following documents to begin NRI stock investments in India:

  • A copy of your PAN card and PINS letter.
  • A copy of the FEMA declaration to verify the source of funds.
  • A copy of your Indian or foreign passport (if you've attained citizenship of another country), PIO or OCI card. The photocopies should be notarized by the Indian embassy in your country of residence.
  • A copy of your overseas address proof document
  • A cancelled cheque of your overseas bank account
  • Details of the NRE or NRO account you intend to link to your trading and DEMAT account, including bank and branch name, address, account number, IFSC code, etc.
  • Duly signed FATCA declaration form as per the PMLA Act.

Actual trading process for the NRI

The actual process for NRI stock trading in India is the same as that followed by resident Indians investing in the share market. You have to select your preferred company and the number of stocks you want to buy at the limit or market price of the share. Shares can be bought and sold through the trading account and are held in electronic form in the DEMAT account.

That said, NRI investment guidelines may differ. For instance, you are not permitted to invest in certain stocks. So remember to consult your brokers before investing, failing which you will have to face steep penalties. Also, the trading account is credited only after you transfer funds to your NRE or NRO account. When you conduct a transaction, the broker notifies you and the PINS bank to authorize the debits. The PINS account then credits or debits your PINS account accordingly.

Aspects that NRIs must remember while trading Indian equities

Final note: NRI stock investments in India also come with a few considerations. As such, you should remember a few keys aspects related to investing in India.

  • You have to pay taxes on short and long term capital gains, just like resident Indians.
  • For mutual fund investments, you will get dividends after TDS is deducted.
  • While you can trade equities through both NRE and NRO accounts, trades in the F&O segment may be conducted only via non-repatriable NRO accounts.
  • You need to get your Custodial Participant or CP code before you can start F&O trading.
  • You cannot participate in intraday, BTST and STBT trading. Short selling is also not allowed.
  • You cannot trade in currency derivatives and commodities in the F&O segment.

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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.

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