Can NRI Invest in Indian Stock Market?

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The Indian stock market welcomes investments from residents staying within the geographical borders of India and non-resident Indians (NRIs). However, both categories are subjected to different investment rules and regulations while overseen by the Securities and Exchange Board of India. (SEBI)

Indian investors must only create a demat account and trading account with an online stock broker to start their journey. The process includes a comprehensive KYC process to confirm the validity of the investor.

Here, we will focus on why the Indian stock market offers a good option for NRIs and how you can start investing if you reside beyond the borders of India.

The Benefits of Investing in the Indian Stock Market for NRIs

According to a study by the World Bank in 2021, India's stock market return was capped at 21.5% for the year. This figure was exponentially higher than the average fixed deposit returns, which do not exceed 7%. Hence, the Indian stock market is a lucrative investment opportunity not just for the residents but for the NRIs as well.

The high returns and the developing market offer an attractive option for NRIs. About 25% of the NRIs in India and Canada prefer to diversify their investment portfolio with avenues available in India. Here's the breakdown of NRI's interest in the Indian financial space.

25% prefer to invest in mutual funds.
20% are risk-averse and opt for fixed deposits.
More than 15% gravitate towards real estate.

Unfortunately, the interest in stocks has been historically low at a mere 6%. The primary reason can be attributed to low awareness and increased apprehension about the fluctuations in the stock market. However, it provides one of the best investment opportunities for NRIs due to the following reasons:

Diversified investment portfolio to avoid dependency on a single factor.
Regular dividends from companies reward the shareholders.
More liquidity since finding a seller for your shares on the trading exchanges is easy.
Opportunity to beat the market inflation rates every year.

You also gain the flexibility to invest small amounts for testing the waters. Here's how you can get started investing in the Indian stock market!

How Can NRI Invest in The Indian Stock Market?

Here is a step-wise guide to investing in Indian stocks as an NRI.

Fulfill Certain Criteria

NRI classification is not provided to every Indian resident settled abroad. Presently, there are about 13.4 million NRIs, and the rest are overseas citizens of India (OCIs). The NRI tag requires you to complete the following requirements:

The person must stay in India for more than 60 days but less than 182 days in a year (financial year).
Alternatively, the stay could last over 365 days in four financial years.
People are deputed to a country other than India for more than 180 days.

Open a Non-Resident External (NRE) Account

The primary purpose of an NRE account is to act as an account where NRIs can park their foreign funds. It can be opened with any RBI-verified banking institution in India, allowing NRIs to invest in the Indian stock market. NRE accounts are completely tax-exempt, as specified by the Government of India.

The next step is to prepare a mandate and provide clearance to an individual who is already a resident of India. This mandate holder will be in charge of operating the bank account but will have no claim over the account.

Alternatively, NRIs can create a power of attorney in India to be eligible to execute and redeem their investments in the stock market. The only requisite is getting it notarised before submitting it as a mandate for investing.

Another option is to get associated with a broker and complete your KYC process to start trading directly on the Indian stock exchanges. As long as the NRIs comply with the regulations laid by SEBI, they can access online trading facilities.

Get the Portfolio Investment Scheme (PINS)

PINS is a permission letter granted by the Reserve Bank of India to grant permission to the NRIs to deal in equities in the Indian stock market. It is vital to open a PINS account, which will be managed by the bank where the NRE account is opened. Once the PINS letter is acquired, the only step remaining is to open a demat and trading account with a broker.

Verify Certain Documents

Just like Indian investors, NRIs have to go through an extensive KYC process to validate their identity and make an NRI demat account and trading account. The broker will ask to verify the following documents before processing the request for the respective accounts:

Photocopy of the PAN card of the NRI.
The FEMA declaration.
Notarized photocopies of Indian passport, foreign passport and PIO card (if applicable).
Address proof of overseas residency and a cancelled cheque from the foreign bank account.
Specify the NRO account that will be used for transferring and withdrawing funds.
The signing of the Foreign Act Tax Compliance Act (FATCA) declaration.

After these documents are verified, the NRI is officially permitted to trade in Indian equities through a demat account with the broker.

Limitations for NRIs

While NRIs can enjoy investment privileges in the stock market, they are also subjected to different rules than Indian investors. Some of these are as follows:

Not permitted to take part in intraday trading in the stock market. NRIs are only allowed to trade on a delivery basis.
Disallowed to invest in specific stocks as per the RBI mandate. It is recommended to contact the broker before deciding to invest in a stock.
The dividends acquired will be subject to TDS reductions.
F&O trading can only be done with an NRO account, provided NRIs have a custodial participant in place.

Final Thoughts

After completing the verification process and opening an NRE or NRO account, NRIs can partake in delivery-based trades during regular market hours. If you are an NRI well-versed with Indian companies and track their performances, long-term investment can be the way to build wealth.

Stepping foot into the Indian stock market can be confusing due to the number of brokers available. Why not seek the expertise of Choice India? We have an established presence in the equities market and provide you with a consolidated platform to invest in securities and mutual funds.

So, expand your portfolio into the Indian financial markets by opening a demat account with Choice India now!