The Indian stock markets are one of the most prominent emerging markets on the global platform and are capable of providing lucrative returns to investors in the long term. Despite the volatility in the stock markets when the covid pandemic hit the world, Indian stock markets and our economy have bounced back relatively better as compared to many of its international counterparts. Investment in Indian stock markets has long attracted millions of investors who have tried their hand at earning better returns as compared to traditional investment options. However, apart from Indian investors, NRIs are also allowed to invest in the Indian stock markets.
Given below are a few details of such investment by NRIs and the process to open a Demat account for such NRIs.
Who is an NRI?
We have all heard the word NRI at some or the other point in our life but does everyone know the exact or the correct meaning of this term? Before learning about the process to open a Demat account by an NRI, let us first understand who exactly is an NRI.
The term NRI is defined as per the provisions of FEMA (Foreign Exchange Management Act) as well as the Income Tax Act. According to FEMA, an NRI is a person resident outside India who is either a citizen of India, an Overseas Citizen of India (OCI), or a Person of Indian Origin (PIO). Whereas as per the Income Tax Act, NRIs can be defined as under,
- When a person stays in India for a period of less than 182 days.
- When a person resides in India for a period of less than 60 days on a continuous basis or a period of 365 days in four years preceding the current year in consideration.
- It includes any Indian Citizen or any person of Indian origin who stays outside India for the purpose of employment or education.
What is an NRI Demat Account?
Like the ordinary Demat account an NRI Demat account is also a digital space where the dematerialized shares of a company and other securities like mutual fund units, bonds, etc owned by an NRI are held electronically. NRIs can open a trading account as well as a Demat account after the approval of the central bank.
NRIs can invest in the Indian share market through the Portfolio Investment Scheme (PIS). This investment can be done on a repatriation and non-repatriation basis. NRI investments through PIS are mandatory as all the NRI investments need to be reported to the apex bank. This scheme allows the NRIs to invest in shares and debentures directly from the recognized stock exchange by using their bank account and their nominated branch.
What are the types of NRI Demat Accounts?
NRI accounts, unlike regular or standard Demat accounts, are essentially of two basic types. The details of these accounts are mentioned below.
NRE Demat account
NRE Demat is the Non-Resident External Demat account. This account can be used by the NRIs to buy and sell shares and other similar securities on a repatriable basis which means that the proceeds can be transferred abroad to their place of residence. NRIs have to route their investment in the share market through PIS through the NRE Demat account. Through an NRE Demat account, NRIs can repatriate both principal and the interest amount generated on the investment. Also, NRIs can hold a maximum of up to 5% of the paid-up capital in any Indian company. Investment in any IPO by an NRI can also be done through the NRE accounts.
NRO Demat account
NRO Demat account i.e., the Non-Resident Ordinary account is used to trade in shares and other securities like futures and options on a non-repatriable basis. Non-repatriable basis implies that not all the proceeds from the trades or investment through this account are eligible for a transfer by the NRIs to their country of residence. NRIs are permitted to transfer a maximum amount of $1 million of their funds abroad in any financial year. Investment in an NRO account is free from the PIS route that is otherwise mandatory for NRE accounts. It is to be noted that the principal amount has to be repatriated after payment of taxes and the interest amount can be repatriated after payment of TDS on such amount.
How to open an NRI Demat account?
There are many ways that an NRI can open their NRI Demat account i.e. with any Depository Participant or with any registered stockbroker as well as any Bank that is registered with NSDL and CDSL. The NRI Demat account can be opened online or offline mode. Prior to opening the NRI Demat account, NRIs have to select the type of NRI Demat account to be opened (whether NRE Demat account or NRO Demat account). The process for the same is detailed below.
- The first step is to download the Demat account opening form available on the website of the account provider or download apps like Fisdom that offer such services.
- The applicant has to then fill out this application form and submit certain KYC documents that have to be self-attested and notarized by the Indian Embassy or any other authority that is competent in this regard.
- This application has to be submitted to the chosen Depository Participant to open the NRI Demat account.
NRIs, need to provide the following information along with the said application form while opening the NRI Demat account.
- PAN Card of the applicant
- The NRI Bank account (NRE or NRO) of the applicant
- PIS letter of approval that is issued directly by the RBI to the NRI applicants.
NRI Demat accounts function in the same manner as any ordinary Demat account. The funds in the NRI Demat account can be transferred by the NRIs depending on the type of Demat account opened by them. Although these accounts have a few additional restrictions, they help the NRIs to invest and trade in shares and other securities in India at the applicable charges as per the guidelines of the Depository Participants and the mediums to open the Demat account.
Some of the charges levied on the NRI Demat account include,
-The one-time account opening fee
-Other ancillary charges (applicable if any)
The documents needed to open the NRI Dermat account are,
-Application form to open the Demat account duly filled and signed (by all applicants in case of a joint account).
-PIS letter of approval issued by RBI to the applicant
-Copy of PAN card
-Copy of passport and Visa
-Passport size photograph of the applicant with a valid signature across such photograph.
-Address of the applicant of their overseas residence.
-A cancelled cheque of the bank account to be linked with the Demat account.
-Photograph and signature of nominees
Yes. Any new NRE Demat account has to be opened or routed through the PIS (Portfolio Investment Scheme) to enable the RBI to track all the NRI investments.
No. NRI investors can trade only in equities through their NRE Demat account.