Are you an NRI (non-resident Indian) and want to invest in the booming Indian stock market? You may also want to know if an NRI can open a Demat account in India? The short answer is yes. However, there are a few things that you should know as an NRI investor before you decide to open a Demat account in India.
The Demat account will help you invest or trade in stocks, mutual funds, IPOs, and much more. This article looks at everything you need to know about opening an NRI Demat account. We also help you understand the nitty-gritty associated with the process. So, let’s get started.
What Is an NRI Demat Account?
An NRI Demat account is just like an ordinary Demat account. The only differentiation here is the sub-status that includes 'NRI Repatriable' as an addition. Any NRI who wants to invest their foreign earnings in the Indian stock market needs to open this account.
You can use a Demat account to hold a range of securities. These include stocks, IPO shares, mutual funds, and much more. All these securities will be in their electronic forms and you will receive adequate documentation for all the money you invest. A Demat account is quite similar to a bank account. The only difference here is that the account will hold stock market securities instead of money.
If you have an NRI Bank account, you can also link it with your Demat account. It will enable seamless transactions whenever you want to deposit or withdraw money. If you sell securities and earn bonuses or dividends, the money will automatically get transferred to your bank account linked with NRE (non-resident external).
Here are some key NRE Demat accounts that you should be aware of.
- It is mandatory for you to link your NRE Demat account with your NRE bank account. If you fail to oblige, you will not be able to proceed with investing in the share market.
- You will have to open two separate Demat accounts. One will be for repatriable and the other for non-repatriable investments.
- An NRE Demat account is also known as a repatriable Demat account.
- You can transfer the profits and proceeds from sales of securities abroad.
Can an NRI open a Demat Account to Invest in Shares?
You may wonder, can an NRI open a Demat account? Yes, both resident Indians and non-resident Indians (NRIs) can trade in the stock market by holding a Demat account. However, there are some considerations for NRIs who want to open a Demat account. They need to follow the guidelines specified in the FEMA (Foreign Exchange Management Act).
NRIs can hold both repatriable and non-repatriable Demat accounts. If you want to trade in secondary markets, there are a few things to keep in mind. You can operate the related Demat account only after getting the Portfolio Investment Scheme (PIS) license. It is available at the designated banks that pave an entry for NRIs to invest in the stock market.
The Reserve Bank of India (RBI) guidelines also state that NRIs can only have only up to 5% of paid-up capital in Indian companies. You can use your NRE Demat account to invest in the Initial Public Offers (IPOs). It is applicable for investments on a repatriable basis. If you want to do it on a non-repatriable basis, you will have to use the NRO Demat account and NRO bank account.
There could also be some exceptions where an individual might hold a Demat account before they get the status of an NRI. In such circumstances, those account holders can convert the account into the NRO category. They can do it after leaving the country or even create a new Demat account. The existing broker will have to transfer shares to the new NRO account.
Types of NRI Demat Account
Here are the different types of NRI Demat accounts.
Non-Resident External accounts are ideal for NRIs to deposit income from their foreign countries. They can store that income in the NRE account in INR. NRE accounts offer several advantages to NRIs. They can open savings or current accounts and even enable fixed and recurring deposits.
NRIs also get the benefit as they do not have to pay any tax on the interest amount generated by storing money in these accounts. Repatriation of funds is also possible from such accounts. If you are not in India, you can also request one of your relatives to open an NRE account on your behalf.
NRO accounts are quite similar to NRE accounts. An account holder can deposit and store INR of any amount. The major difference is that you can use only the money through income generated from India. You cannot deposit any money in the NRO account that you earn from the foreign land.
In such cases, it is advisable to open an NRE account. However, with changing times, there have been exceptions. Some banks do allow income earned from foreign countries to be a part of the NRO account. You can also open NRO accounts as savings, current, or fixed deposit accounts.
NRO accounts are also useful for individuals who want to migrate to a foreign country for employment or residency purposes. They can get their residential account converted to an NRO account.
It is much different from NRE and NRO accounts. NRIs and persons of Indian origin (POI) can deposit money earned from foreign countries to the account. Furthermore, they can also store the money in the currency of the foreign country they live in. For example, an NRI living in the US can store the money earned from foreign in USD currency.
There are several other benefits for NRIs holding an FCNR account. They can deposit money without bothering about taxes. It is also possible to keep foreign money in the account as long as the individual holds the NRI status.
Documents Required to Open NRI Demat Account
Here are the different documents required for opening an NRI account. This list is for reference purposes only. The exact documents would depend on the broker and their requirements.
1. Documents highlighting your current status:
- For Indian passport holders
- The place of birth should be India
- Valid passport
- Valid work/student/employment/resident visa
- For foreign passport holders
- The place of birth should be India in the foreign passport
- A copy of the OCI/PIO card
2. PAN Card
3. A canceled cheque of PIS FEMA NRE/NRO bank account.
4. A permission letter from the designated bank allowing repatriation-based trading.
5. Address proof for overseas residence. It could be a foreign passport, driving license, bank statement, utility bill, rent agreement, sale deed, leave and license agreement, etc.
7. Bank account and depository account proof.
8. Account opening and Demat account opening fee check.
9. Signed copies of account opening forms.
Benefits of Opening an NRI Demat Account
Here are the advantages of opening a Demat account for NRI
You can invest in the Indian stock market from any part of the world. The entire process is hassle-free and you can get started within minutes. The transactions you make will instantly get reflected in your Demat account.
No physical documentation
You do not have to worry about submitting documents physically by visiting the brick-and-mortar office of brokers. Everything happens online, and you need only basic documents to get started.
You can buy and sell stocks as much as you want. There are no time lags or delays with transactions. Your buying and selling activity records will give you an overview of your investments.
There are no risks of loss of physical documents as everything is in electronic format. You also do not have to worry about forgery risks. Stockbrokers provide a safe and secure platform that enables seamless transactions.
You can store as many shares as possible in your account. There are no compulsions, so you can even start with one share.
Multiple investment options
Besides investing in shares of stock markets, you can also make several other investments through your Demat accounts. It includes convertible debentures, mutual funds, IPOs, and ETFs (exchange-traded funds).
As an NRI, you can open and hold a Demat account in India. However, you will have to comply with the guidelines specified in the Foreign Exchange Management Act (FEMA). There are several lucrative opportunities for investments for NRIs in the Indian stock market. A Demat account will hold your shares in the electronic, Dematerialised form.
If you are looking to open a Demat account, you can explore our Demat account opening services. The process is simple and you can get started within minutes. All you have to do is share with us a few necessary documents, and we will open your account after verifying your credentials.
Begin your stock market investment journey with Choice India today.