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Stock Market Investment

India’s dynamic stock market offers NRIs a powerful way to participate in the country’s economic growth and build long-term wealth. With access to equity shares, mutual funds, ETFs, and derivatives, NRIs can invest through regulated routes like the Portfolio Investment Scheme (PIS) or on a non-PIS basis via NRO accounts. However, investing in India also comes with regulatory requirements under FEMA and RBI, tax considerations, and currency remittance rules. This guide helps you understand the process, choose the right route, and invest confidently and compliantly in Indian equities.

How to Invest in the Indian Stock Market by NRIs?

An NRI can depict investment in Indian stock markets by opening a PIS-compliant bank account with a demat account. Through these accounts, NRIs can make direct investments in equities or choose mutual funds. Even websites allow subscriptions to Initial Public Offerings, after which one can buy the shares of companies before those hit the secondary market.
Streamlined processes further allow NRIs to trade shares on the BSE and NSE, thereby developing a portfolio suited to their goals of investment.

Three Ways NRIs Can Invest in Indian Equities

NRIs can invest in Indian equities through the following methods:

  • Direct Equity Investment: Under the PIS account, an NRI can directly invest in individual shares listed on Indian Exchanges. By doing so, they can have a diversified stock portfolio. This alternative will work for those who want hands-on investment in particular companies or sectors.
  • Investment through Mutual Funds: These are managed funds whose portfolios comprise a mix of equities and bonds. Mutual Funds investment is an easy way for NRIs to invest without the need to select individual stocks. For the investors, the option to choose equity, debt, or hybrid funds based on the risk appetite that best fits makes mutual funds stand out as an attractive diversified exposure.
  • Exchange-Traded Funds:They combine the features of both stocks and mutual funds, offering liquidity and diversification. For NRIs, ETFs offer diversified, cost-effective investing in a particular index, sector, or commodity with flexibility and lower transaction costs.
    NRIs May Invest on Repatriable or Non-Repatriable Basis

NRIs may invest on either a repatriable or a non-repatriable basis, depending upon their objectives:

  • Repatriable Investments: The investments made through its account are fully repatriable, meaning the principal and return are payable abroad. It is a go-to option for those NRIs who seek flexibility in drawing funds out from India internationally.
  • Non-Repatriable Investments: The investments through an NRO account are non-repatriable beyond the limit, meaning thereby that such investments stay in India. This is suited for NRIs who plan to keep funds within the country for future needs.

What is PINS Approval from RBI?

Portfolio Investment Scheme (PINS) approval from the RBI is Rs. 10 lakh or $2,500 for NRIs dealing in Indian equities. This gives assurance that the investments by NRIs are tracked and put under scrutiny. Banks report every transaction through PINS to the RBI to show the transparency of transactions and adherence to Indian investment laws. PINS approval enables NRIs to trade confidently in Indian stocks within the ambit of regulatorily acceptable norms.

Documents Required for Opening

Trading cum Demat Account Documents required by an NRI to open a trading and demat account are as follows:

  • Identification Proof: Passport, visa, and proof of overseas address.
  • PIS Approval Letter: The letter will be issued by the bank in which the PIS account is maintained.
  • PAN Card: This is required in paying one’s taxes in India.
  • Bank Account Details: NRE or NRO account linked to the PIS account.

These may further be supplemented with additional KYC documents depending upon the demand by the brokers. It is always better to ensure that the NRIs have all the required documents to open the account before proceeding with the process.

How NRIs Actually Undertake the Trading Process

The following is the trading process of NRIs:

  • Step 1: Transferring funds to the trading account from the NRE or NRO account.
  • Step 2: Trade and investment dealing: chose stock through the trading terminal and issued buy/sell transaction orders to BSE or NSE.
  • Step 3: The broker will prepare a PIS report for the RBI mentioning every single trade, basically to conserve the rules and regulations.

This will allow the NRIs to safely purchase and sell stock in a way that is considered compliant with Indian financial regulations.

Key Aspects NRIs Must Remember While Trading Indian Equities

  • Investment Ceiling: NRI cannot invest more than 10% of paid-up the capital of the company.
  • Tax Implications: These apply to dividends and capital gains; double taxation may apply unless there are treaties with the country of which the NRI is a citizen.
  • Trading Restrictions: NRIs are only allowed delivery-based trading, hence they are not permitted for intraday trading.

All these aspects will help the NRIs in keeping their investments compliant and well-managed.

List of restricted stocks for the NRI-PIS account can be found by visiting the following websites:

Popular Demat & Trading websites in India include:

FAQs

Can NRI invests in shares in India through a stock exchange?

Yes, NRI can purchase shares or convertible debenture of an Indian Company through stock exchanges, under the portfolio investment scheme on repatriation and /or non repatriation basis.

How can NRIs invest in shares in India?

As per Reserve Bank of India (RBI) guidelines, NRI who wishes to invest in shares in India through a stock exchange need to approach the designated branch of any authorized dealer (bank) authorized by reserve bank to administer the PIS (Portfolio Investment Scheme) to open a NRE (Non Resident External) /NRO (Non Resident Ordinary) account under the scheme for routing Investments.

What is a Portfolio Investment Scheme (PIS)?

Portfolio Investment Scheme (PIS) is a scheme of reserve bank of India under which – Non Resident Indian (NRIs) can purchase/sell shares/convertible debentures of Indian companies on Stock Exchanges under Portfolio Investment Scheme. For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.

What is an Overseas Corporate Body (OCB)?

Overseas Corporate Body’ means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by Non-Resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by Non- Resident Indians directly or indirectly but irrevocably.

What are the documents required to be collected from Investor to open a NRI/PIO/OCI trading account?

List of documents to be taken while registering NRI/PIO/OCI clients as may be applicable:

  • In case of Indian passport: Valid passport, Place of birth as India, Valid Visa – Work/Student/employment/resident permit etc.
  • In case of foreign passport: Valid passport and any of the following:
    • Place of Birth as India in foreign passport
    • Copy of PIO / OCI Card as applicable in case of PIO/OCI
  • PIS Permission Letter from the respective designated bank
  • PAN Card
  • Overseas Address: Driving License/ Foreign passport /Utility Bills/Bank statement (not more than 2 months old)/ Notarized copy of rent agreement/ leave & license agreement/ Sale deed.
  • Photograph of Investor.
  • Proof of respective bank accounts & depository accounts.

Is it mandatory for a client to provide local (Indian) address?

At the time of client registration, client needs to provide its foreign address along with documentary proof of the same. If client so desire it can keep its local address as correspondence address. In such scenario additionally they are required to provide documentary evidence in support of local address also.

What are the additional requirement with respect to contract notes?

Contract notes in original for both purchase and sale transactions needs to be submitted with in the time specified by the designated bank to enable designated banks to report the same to Reserve Bank of India.

Is there any ceiling on the Investments under the Portfolio Investment Scheme?

NRIs are allowed to invest in shares of listed Indian companies in recognized Stock Exchanges under the PIS. NRIs can invest through designated ADs, on repatriation and non- repatriation basis under PIS route up to 5 per cent of the paid- up capital / paid-up value of each series of debentures of listed Indian companies. The aggregate paid-up value of shares / convertible debentures purchased by all NRIs cannot exceed 10 per cent of the paid-up capital of the company / paid-up value of each series of debentures of the company.The aggregate ceiling of 10 per cent can be raised to 24 per cent, if the General Body of the Indian company passes a special resolution to that effect.

How NRIs/PIO can remit Sale proceeds?

In case of NRI/PIO, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE /FCNR(B)/NRO accounts of the NRI/PIO, whereas sale proceeds of non repatriable investment can be credited only to NRO accounts.

Can an NRI purchase securities by subscribing to public issue? What are the permissions/approvals required? How can those shares be sold?

Yes. The issuing company may issue shares to NRI on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission. While seeking the credit of sale proceeds to NRE/NRO account, the designated bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.

Can NRI trade in futures & options segment of the Exchange?

Yes, NRIs are allowed to invest in futures & options segment of the exchange out of Rupee funds held in India on non repatriation basis, subject to the limits prescribed by SEBI.

Can trading account be opened for person’s resident outside India who had been allotted shares under ESOP scheme?

Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. Trading account can be opened for person’s resident outside India only for the sole objective of selling of shares acquired under ESOP Scheme.

What needs to be done by NRIs for trading in Futures & Options segment of the Exchange?

An NRI, who wishes to trade on the F&O segment of the exchange, is required to approach the exchange through a clearing member, through whom the NRI would like to clear his trades for allotment of custodial participant (CP) code. Clearing corporation would assign a CP code to each NRI, based on the application received from the clearing member of the NRI. Trading members should ensure that at the time of order entry CP Code of the NRI is placed in the CP Code field of the trading system. The NRI client shall have only one clearing member at any given point of time.

How Investment positions of NRIs are monitored?

Reserve Bank monitors the investment position of NRIs/FIIs in listed Indian companies, reported by designated banks, on a daily basis.When the total holdings of NRIs/FIIs under the Scheme reaches the limit of 2 percent below the sectoral cap, Reserve Bank will issue a notice (caution list) to all designated branches of designated banks cautioning that any further purchases of shares of the particular Indian company will require prior approval of the Reserve Bank.Once the shareholding by NRIs/FIIs reaches the overall ceiling / sectoral cap /statutory limit, the Reserve Bank places the company in the Ban List. Once a company is placed in the Ban List, no NRI can purchase the shares of the company under the Portfolio Investment Scheme. List of caution/banned RBI scrip is available at http://www.rbi.org.in/scripts/BS_FiiUSer.aspx.

In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non- Resident to Resident?

Yes. It is the responsibility of the NRI to inform the change of status to the designated authorized dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account.

Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?

NRIs are allowed to Invest in Exchange Traded Funds (ETFs). NRIs can invest in ETFs both on repatriation as well as non repatriation basis.

What is a designated bank branch?

Reserve bank of India has authorized few branches of each authorized dealer bank to conduct the business under portfolio investment scheme on behalf of NRIs. NRI can select only one authorized dealer bank for the purpose of investments under portfolio investment scheme and route the transactions through the branch designated by the authorized dealer bank.

Can PIO (Person of Indian Origin) as well as OCI (Overseas Citizen of India) also invest in shares in India?

Yes, PIOs and OCIs do have a parity with NRIs in respect of all facilities available to the NRIs in the economic, financial and educational fields except in matters relating to the acquisition of agricultural/ plantation properties.

Can Overseas Corporate Body (OCBs) also invest in shares in India?

OCBs have been prohibited from making investments under Portfolio Investment Scheme. OCBs have been de-recognized as a class of investor entity w.e.f. September, 16, 2003. Further, the OCBs which have already made investments under the PIS are allowed to continue holding such shares /convertible debentures till such time these are sold on the stock exchange.

What are other client registration formalities to be taken care while registering NRI/PIO/OCI Clients?

In case of NRI/PIO/OCI client registration documents are required to be executed by client himself and not by Power of Attorney Holder. In case of In-person verification of such clients, the members may obtain from such clients KYC documents attested by any one of the following entities – Indian Embassy/Consulate general in the country where the client resides, Notary Public, Court, Magistrate, Judge or Local banker.

Can two separate trading accounts namely (NRE & NRO) can be opened by NRI?

Yes, clients can have two separate trading accounts based on NRE & NRO.

What precautions trading member needs to take while dealing with NRI Clients?

  • Trading member need to ensure that
  • Securities are not in RBI ban list before executing the order.
  • Clear funds are available for purchases.
  • Securities are available before executing any sell order.
  • Depending upon whether the purchases are made on repatriation / non-repatriation basis pay-out of the securities needs to be transferred to respective de-mat account.
  • Purchase/Sale transactions in cash segment should be settled by delivery only.

How payments could be made by NRIs for shares purchased on stock exchange?

Payment for purchase of shares and/or debentures on repatriation basis has to be made by way of inward remittance of foreign exchange through normal banking channels or out of funds held in NRE/FCNR(B) account maintained in India. If the shares are purchased on non-repatriation basis, the NRIs can also utilize their funds in NRO account in addition to the above.

Can an NRI transfer shares purchased under PIS to others under private arrangement?

Shares purchased under PIS on stock exchange shall be sold on stock exchange only. Such Shares cannot be transferred by way of sale under private arrangement or by way of gift (except by NRIs to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India) to a person resident in India or outside India without prior approval of the Reserve Bank.

Can NRI do Intra-day transactions in cash segment?

No, NRI Investor has to take delivery of shares purchased and give delivery of shares sold. Short Selling is not permitted.

Can NRI trade in Currency derivative segment of the Exchange?

No, Only “a person resident in India” as defined in section 2(v) of FEMA Act 1999 are allowed to participate in currency derivative segment of the Exchange.

Can rights/bonus shares be issued to NRI?

FEMA provisions allow Indian companies to issue Rights / Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap as may be applicable.

What are the limits applicable to NRI in Exchange Traded Derivative Contracts?

Position limits would be applicable on the combined position in all derivative contracts on an underlying stock at an Exchange. Position limits for NRIs shall be same as the client level position limits specified by SEBI from time to time.

  • For Index based contracts: Disclosure requirement for any persons or persons acting in concert who together own 15% or more of the open interest of all derivative contracts on a particular underlying Index.
  • For Stock option and single stock futures contracts:
    • The gross open position across all the derivative contracts for a security for each specific client shall not exceed higher of:
    • 1% of the free float market capitalization (in terms of number of shares) OR
    • 5% of the open interest in all derivative contracts in the same underlying stock (in terms of number of shares)

Client level position limits security-wise, are made available to members on NSE’s website (www.nseindia.com).

In case a person who is resident in India becomes a non-resident, will he/she be required to change the status of his/her holding from Resident to Non-Resident?

As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non-resident Indian, on a non-repatriable basis.

In case a non-resident Indian becomes a resident in India or vice versa, will he/she be required to open a new trading account?

Yes, Trading member needs to open a new trading account which needs to be uploaded with the new category code (01 – Resident Individual) & (11 – NRI) as may be applicable.