How Can an NRI Invest in Shares in India?
You must have seen how the stock markets have moved in the past one year. If you compare the alue of the previous year of the BSE Sensex with the current value you would have noticed a rise in about 5000 points. From a value of around 15000 points in May 2012 the BSE Sensex is zooming towards 21000 points in May 2013 .Aren’t these magnificent gains?.The stock markets were regarded as hot potatoes about 4 years back. These are now zooming towards all time highs The NRI’s who watched from the sidelines after the stock market crash of September 2008 want to join the party. India has a very large population residing abroad sending huge remittances back home. These NRI’s want to join the party and join the Indian Growth Story. However it would be wise to remember this saying "Fortunes Are Easily Got But Hard To Be Kept". So it would be wise to study about the highly volatile Indian market before investing in it. I would like to remind all of you that the team of Financial Planners at Moneymindz.com are always there for you to plan your financial needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 022 6211 6588.
What An NRI Needs To Know In Order To Invest In Indian Stocks
- There are no limits on how much an NRI can invest in India , but as per rules and regulations the NRI/PIO cannot invest more than 10% of the paid up capital in a single private company or 20% of the paid up capital in a public sector company.
- The ceiling can be raised from 10% to 24% provided the general body of the company passes a resolution to that effect.
- These rules are applicable only for direct investments in equity and not for investments routed through mutual funds.
- If you are a first time investor it would be wise to focus on Large Capitalized stocks of high quality companies which have stable earnings.
- You can hire a Portfolio Management Service which could give you access to a highly customized portfolio where you could enter into a profit sharing mode or you could pay the management fees which would be around 3%.You need to note the transaction and brokerage costs involved in the portfolio management service.
- If you are well familiarized with the Indian Stock market you could sign up with a brokerage but your decision making process needs to be sound.
- You could hire a financial planner who would invest on your behalf and make the necessary decisions in a set of quality stocks and enhance your investments.
How Can NRI’s Invest In Indian Shares
- The NRI has to invest in Indian equities through the Portfolio Investment Scheme as per the guidelines of RBI.
- The NRI has to open an NRE/NRO account either on a repatriable or non repatriable basis.
- The NRI has to open a demat account with a depository participant and a trading account with SEBI registered broker in order to execute trades. The NRI trades in stocks of the Indian market and the shares which are disinvested by the government of India.
- If the NRI purchases shares for repatriation or to send the funds back to his country of residence inward remittances of foreign currency needs to be made through his NRE/FCNR account. For non repatriation basis the NRI can use funds from his NRO account as well as from the NRE/FCNR accounts.
- If the shares sold are held on a repatriable basis the sales proceeds are credited to the NRE/NRO/FCNR accounts. The sales proceeds of non repatriable funds can be credited only to the NRO accounts.
- NRI can open two separate trading and demat accounts on a repatriable and non repatriable basis.
- NRI’s cannot engage in short selling. They are also not allowed to transact off market.
- Shares purchased by NRI’s under PIS cannot be transferred by way of sale or a private arrangement or by a way of gift to a person resident outside India or an Indian resident without prior approval of the RBI. However NRI’s can transfer shares acquired under PIS to their relatives.
- RBI monitors the investment position of NRI’s in listed Indian Companies on a daily basis through the designated banks. Contract notes in original for both purchase and sale transactions need to be submitted to the designated bank so that they can update this with the RBI.
- Rights and Bonus shares are issued to existing NRI shareholders subject to Sectoral cap as may be applicable.
- The brokers need to note that the securities are not in the RBI ban list, Funds are available for purchases, Securities are available before executing sell orders, Purchase/Sale transactions need to be settled through delivery only in the cash segment .Depending on whether the purchases are made on a repatriation/non repatriation basis payout of the securities needs to be transferred to the respective demat account.
How Do US Based NRI’s Invest In Indian Stocks
- Trading accounts are opened by NRI’s when they are India and on a voluntary and need basis. As per the Know Your Client Norms a copy of the NRI’s passport and visa is kept as proof that the account was opened when the NRI was in India .Generally there are no fees charged by the broker when the NRI is in India.
- Most of the leading brokers will have restrictions on the use of an online platform as this is in conflict with USA (Security And Exchange Commission) ,as SEC regards the use of internet as same as a telephone call .In such cases you will have to transact through an official of the broking house.
- A trader is assigned who executes trade orders in the client’s portfolio. Trader has the mandate to move money from the NRE/NRO account to the Portfolio Investment Scheme Bank Account and executes trades in the demat account linked to the PINS account..US and Canadian resident investors can log on to their trading portal to view investment portfolio performances and securities held in their accounts.
Documents Needed For Opening A Portfolio Investment Scheme Account
- Address Proof In India
- Proof Of Address Abroad
- Copy Of Visa And Passport
- Cancelled Cheque Of NRE/NRO Account.
- FEM Declaration.
What If I Already Have An Existing Demat Account In India
- The first step here is that your existing demat account which holds the shares for long term investments needs to be closed.
- This does not mean you would have to sell all your shares. All you have to do is prove that you are an NRI and transfer shares to the PIS account.
- The existing demat account will have to be linked with the NRO account. Investors can sell shares and transfer funds to the NRE account up to 1 Million Dollars per year to their country of residence.Since shares were purchased when you were an Indian resident there is a restriction on taking money out of the country which is up to 1 Million Dollars per year.
- You can continue to invest in the Indian Stock Market by opening a demat account linked to the NRE account albeit with some restrictions.NRI’s are not allowed to speculate on the Indian Market and transactions are done on a delivery basis. For NRI’s tax on short term capital gains are deducted at source. The refunds on loss in the short term can be claimed by filling returns with the Indian Tax Authorities.
- If you return to India as a normal resident your NRI demat account will get converted to a normal demat account just like any ordinary Indian resident.
Taxation Of Shares Of An NRI In India
- If an NRI sells shares of an Indian Company which he had acquired using foreign currency the taxation process will require currency conversion and currency reconversion for capital gains taxation. These capital gains will be taxable at the rate of 10% and no indexation benefit shall apply.