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Published on Monday, June 8, 2020 by Chittorgarh.com Team | Modified on Tuesday, April 20, 2021
Contents:
An NRI wishing to invest/trade in Indian capital markets needs 3 accounts to start trading in India;
Note:
| Investment Option | Trading on repatriation basis | Trading on Non-repatriation basis |
|---|---|---|
Equity |
o NRE PIS Bank Account o NRE PIS Trading Account o NRE PIS Demat Account |
o NRO Non-PIS Bank Account o NRO Non-PIS Trading Account o NRO Non-PIS Demat Account {Easy and Convenient Option} |
|
Mutual Funds/IPO |
o NRE Non-PIS Bank Account o NRE Non-PIS Trading Account o NRE Non-PIS Demat Account |
o NRO Non-PIS Bank Account o NRO Non-PIS Trading Account o NRO Non-PIS Demat Account |
|
Derivatives |
- |
o NRO Non-PIS Bank Account o NRO Non-PIS Trading Account o NRO Non-PIS Demat Account (required now due to physical settlement of stocks in F&O if applicable) o Custodial Participant Code |
An NRI has to open NRI bank account as a first step towards trading. There are 2 types of bank accounts viz. NRE [Non- resident External] and NRO [Non- resident Ordinary]
NRE Bank account is to transfer income earned abroad to India. It is a rupee dominated account meaning the money can be deposited in any foreign currency will get converted to the Indian rupee at the time of deposit. It is a repatriable account and interest earned on it is tax-exempt since these are earnings from abroad.
NRO bank account is a non-repatriable account to manage the income earned in India viz. rent, dividend, etc. The principal amount is repatriable subject to restrictions of USD 1 million per financial year. The interest earned on this account is fully repatriable.
The bank accounts are further classified as PIS and Non-PIS. PIS is the Portfolio Investment Scheme of RBI to facilitate trading by NRIs and PIOs in the Indian stock market.
Initially, PIS was mandatory permission required by NRIs to enter into Indian stock markets where each trade executed by NRI was reported to RBI. This reporting was required to monitor the NRI stock limits and calculation of tax obligations. The sale proceeds were credited to PIS linked bank account post deduction of tax at source as applicable. However, the rules have now been relaxed for NRO mode of transaction, and NRI trading without PIS is possible. NRIs can trade like resident Indians without any requirement of PIS on a non-repatriation basis. The PIS account is required only if an investor wants to trade on a repatriation basis and has an NRE bank account.
To open an NRI bank, an individual can opt for any of the below options:
Once the bank has verified all the documents and is satisfied with the KYC, NRE or NRO or both accounts would be opened by the bank as chosen.
In case an NRI wishes to trade on a repatriation basis, he would have to open an NRE account and apply for a PIS account. Ideally, with relaxation in norms for trading with NRO account which is a way simpler, efficient, and convenient process for NRI investment, an individual may not want to opt this long route, but considering the option is open, given below is the process for PIS account opening.
A Demat account is another must-have requirement to invest in Indian capital markets for holding the securities in electronic format. A Demat account can be opened by approaching a stockbroker. In case the stockbroker does not offer depository services, the Demat account can be opened with a depository participant.
Similar to bank a/c, an NRI has to select the type of Demat account one would like to open viz. NRE (repatriable) or NRO (non-repatriable). Based on the selection made, the stockbroker or depository participant will open the Demat account as NRE or NRO on receipt of duly filled up account opening forms and required documents.
Along with the bank account and Demat account, an NRI needs a trading account to be fully ready to start trading stock on Indian exchanges. A trading account acts as an interface between the bank and the Demat account which is used to place orders with brokers for buying and selling the securities.
The trading account can also be opened as NRE or NRO based on the repatriation basis. In case, one wants to trade to withdraw the funds externally, an NRE Trading account needs to be opened linked to the NRE PIS bank account and to trade on non-repatriation basis NRO trading is to be opened linked to NRO bank account. With the recent change in rules, an NRI does not need PIS to trade in NRO mode.
A trading account can be opened by approaching a stockbroker.
Thus, an NRI can open all the above accounts by approaching the bank, stockbroker/depository participant. To make this process easy and convenient, many financial institutions offer various facilities to NRI as per below:
To trade in the derivatives market, an NRI would additionally need a custodial participant code. The custodial participant code (CP code) is a unique code for clearing and settling the trade. The CP code can be obtained by approaching a stockbroker/custodian who is a clearing member for F&O (Futures and options - derivatives) trades. The clearing member applies to the clearing corporation for the CP code on behalf of the investor by submitting duly filled up forms and required documents. Once the clearing corporation is satisfied and has verified all the documentations it allocates a unique CP code to the NRI. NRI can now start trading in the derivatives segment by maintaining adequate margins with the clearing member.
Below are the documents required for opening the above account. There may be slight variation in requirements from institution to institution.
An NRI requires an NRI Bank Account, NRI Trading Account, NRI Demat Account to start trading in India markets. Initially, PIS permission was a mandatory requirement to trade in equity stocks. However, now PIS is required only if an NRI wants to trade on a repatriation basis. Based on whether an NRI wants to trade on the repatriation or non-repatriation basis below are the specific requirements.
|
Investment Option |
Trading on repatriation basis |
Trading on non-repatriation basis |
|---|---|---|
|
Equity |
· NRE PIS Account · NRE Bank Account · NRE Demat Account |
· NRO Non-PIS Bank account · NRO Non-PIS Trading account · NRO Non-PIS Demat account |
|
F&O |
Not Allowed |
· NRO Non-PIS Bank account · NRO Non-PIS Trading account · NRO Non-PIS Demat account · Custodial Participant Code (CP Code) |
Till recently PIS was mandatory for NRI to invest in Indian equity stocks. However, the rules have now been changed and NRI trading without PIS is possible. The relaxation is applicable for NRO mode of transactions I.e. an NRI can trade without repatriation benefits using NRO account just like resident Indians.
Initially, NRIs were allowed to enter Indian stock markets through the PIS route only for investing in equity stocks on repatriation or non-repatriation basis. However, with new rules PIS is no longer mandatory for trading on non-repatriation benefits An NRI can open an NRO bank account, NRO trading account, and NRO Demat account and start trading in Indian equity. The PIS approval is required only if an NRI wants to invest in equity stocks on a repatriation basis.
As per RBI regulations, trading in derivatives is permitted on a non-repatriation basis only out of rupee funds earned in India. Hence, an NRI can trade in derivatives using the NRO account only and not the NRE account.
Initially, the Demat account was optional for trading in the derivatives segment. However, with the introduction of the mandatory physical settlement of stock in F&O, the Demat account is a must to receive or deliver stock that would arise out of settlement obligation in the F&O segment on expiry.
Yes. A resident Demat account can be converted to an NRI Demat Account. Technically the old demat account is closed and a new demat account is opened with an NRI Non-Repatriable status. If you are an NRI holding stocks in your resident demat account, following are the options available to you:
Document required for converting resident to NRI Demat Account:
Many NRI customers ask questions like:
I had a resident demat/trading account with a broker. Now I have become NRI. Can I convert the same account to NRI Demat/Trading account?
Note
No, generally an NRI cannot convert the existing resident trading account to an NRI trading account. The existing Demat and bank account can be converted to NRO accounts by filling an account modification form.
The conversion of resident accounts is restricted to NRO accounts. In case, an NRI wants to trade on a repatriation basis only, the existing accounts are required to be closed and new NRE accounts (Trading, Demat, and bank) are required to be opened.
In the case of the conversion of the Demat account, all the existing holdings can be transferred to the NRO Demat account to trade on a non-repatriation basis. However, if an NRI wants to open an NRE Demat account, the existing holdings are either required to sold off or transferred to family members as these cannot be transferred to the NRE account. Note: Few brokers like ICICI do not allow for the conversion of Demat account and a new NRO account is required to be opened.
No, the pledged shares cannot be transferred or sold.
In case of invocation of pledge, these shares are required to be transferred from the beneficiary's account to the pledgee's account. Thus, until the loan obligation is not fulfilled and the pledge on the shares is not removed, the pledged shares cannot be sold or transferred to anyone.
No, an NRI doesn't need to provide a local Indian address at the time of account opening. The foreign address with its proof is a mandatory requirement for NRIs.
Though it is not mandatory, an NRI can provide the local address with its documentary evidence for ease of operation or correspondence purpose if one desires.
Yes, an NRI can give a power of attorney (POA) to a resident Indian to trade and invest in India on behalf of the NRI. By appointing a POA, it becomes easy to operate and manage the financial transactions of an NRI.
Though appointing a POA holder can ease the task of an NRI, there are some restrictions on the POA holder. A POA holder cannot open or close the bank accounts. A POA holder cannot repatriate funds outside India and the withdrawals are restricted to local payments. A POA holder is just a representative of the NRI and ultimately an NRI is responsible for all his investments.
An NRI can revoke or cancel the power of attorney (POA) anytime through a revocation deed.
Generally, a POA is registered and thus a revocation deed is required to cancel any rights given to the POA holder. In case if a POA is not registered, a written notice to cancel the POA should be sufficient.
Instances when POA can be revoked or cancelled:
Note: A specific purpose POA generally gets cancelled automatically once the purpose is met. However, in some instances, it may still require a revocation deed if the POA is registered. A special-purpose POA can also be revoked before the purpose is met.
An NRI is permitted to do share trading in India under the Portfolio Investment Scheme (PIS) of the RBI. The PIS route is mandatory for investing on a repatriation basis, while for trading on a non-repatriation basis, an NRI can trade without PIS if the broker is providing such services to NRIs.
An NRI is permitted to do delivery-based as well as intra-day stock trading in India using NRO Non-PIS trading account. Note that certain brokers do not allow short-selling or intraday trading to NRI customers. ProStocks is the leading stock broker offering NRO Non-PIS trading account.
An NRI requires an NRI trading account, NRI Demat account, and an NRI bank account to start investing in Indian stock markets. The NRI accounts are further classified as Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. An NRI can open an NRE (repatriable account) /NRO (non-repatriable) account depending on whether the NRI wants to trade with or without repatriation benefits.
Many banks in India offer 3-in-1 account services to ease the account opening and seamless trading by opening all the accounts under one roof.
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