This is in continuation to our complete guide on How NRIs can Invest in Indian Stock Market?
In an attempt to make you task simple and easier, we are further writing these long list of Q&As to answer your many why`s and how`s of making investments in India for NRIs.
# Who is a Non-Resident Indian (NRI)?
Non-Resident Indian (NRI) means a “person resident outside India” who is a citizen of India or is a person of Indian origin (PIO).
# 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 (PIS) on repatriation (NRE) and /or non repatriation (NRO) basis.
# Can NRI/PIO invests in other securities apart from equity or debentures?
Yes, NRI/PIO can invest in other securities namely:-
- Dated Government securities (other than bearer securities) or treasury bills.
- Units of domestic mutual funds.
- Bonds issued by a public sector undertaking (PSU) in India.
- Shares in Public Sector Enterprises being disinvested by the Government of India.
# Who is a Person of Indian Origin?
Person of Indian origin (POI) means a citizen of any country other than Pakistan or Bangladesh, if
- he/she at any time, held an Indian passport; or
- he or either of his parents for any of his grand parents was a citizen of India by virtue of the constitution of India or Citizenship Act, 1955 (57 of 1995); or
- the person is a spouse of an Indian citizen or a person referred to in clause above
# Who is an overseas citizen of India (OCI)?
Under OCI Scheme operational from 02nd Dec 2005, Government of India decided to grant overseas citizenship of India (OCI) commonly known as “dual citizenship”. A foreign national, who was eligible to become a citizen of India on 26.01.1950 or was a citizen of India on or at anytime after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grand children, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws, is eligible for registration as an Overseas Citizen of India (OCI). Minor children of such person are also eligible for OCI.
However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.
# Who are Overseas Corporate Body (OCB)?
A Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by NRI and includes overseas trust in which not less than sixty percent beneficial interest is held by NRIs directly or indirectly but irrevocably. OCBs were debarred from Portfolio Investment Scheme w.e.f November 29, 2001. OCBs have been banned as a class of investor w.e.f September 16, 2003.
However, they have been permitted to continue to hold the securities acquired by them prior to these dates. Accordingly OCBs may open a demat account, however it can be only for the purpose of dematerializing the existing holdings.
# Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?
Yes, NRIs are allowed to Invest in Exchange Traded Funds (ETFs) both on repatriation as well as non repatriation basis.
# How many PIS can one NRI have?
PIS can be obtained only through one banker at a time.
# 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.
# How payments could be made by NRIs for shares purchased on stock exchange?
Payment for the purchase of shares and/or debentures on repatriation (NRE) 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 (NRO) basis, the NRIs can also utilize their funds in NRO account in addition to the above.
# How NRIs/PIO can remit Sale proceeds?
In case of NRI/PIO, if the shares sold were held on repatriation(NRE) 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 (NRO) investment can be credited only to NRO accounts.
# 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 to a person resident in India or outside India without prior approval of the Reserve Bank. An exception is if the NRIs transfer the shares to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India.
# Can NRI trade in futures & options segment of the Exchange?
Derivative Trading for NRIs is possible only through NRO Account i.e. on Non Repatriable basis. The NRI is required to approach the exchange through a clearing member, through whom he/she 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.
# 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.
# Can rights/bonus shares be issued to NRI?
Indian companies can issue Rights / Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap as may be applicable.
# 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 an NRI transfer a PIS Account?
Yes. If the NRI is already having a PIS account with a bank, he has to close that account and provide the following documents to the new bank along with the application form:
1. NOC: No objection certificate is required from the previous bank stating that the client does not have any dues with them and the bank does not have any problem in his transferring the relationship to other bank. (It is not required for fresh PIS approval)
2. Previous approval letter: Bank X would have issued a PIS approval letter. This letter is required.
3. Details of the existing investments in the form on Annexure II and Annexure III.
# Can OCBs open trading & Dmat Account under PIS?
OCBs were debarred from Portfolio Investment Scheme w.e.f November 29, 2001. OCBs have been banned as a class of investor w.e.f September 16, 2003. However, they have been permitted to continue to hold the securities acquired by them prior to these dates. Accordingly OCBs may open a dmat account, however it can be only for the purpose of dematerializing the existing holdings.
# Can securities purchased under repatriable and non–repatriable category be held in a single dmat account?
No. An NRI must open separate dmat accounts for holding –repatriable’ and ‘non–repatriable’ securities.
# Does an NRI require RBI permission for dematerialiation / rematerialisation of securities?
No special permission is required. Holding securities in demat only constitutes change in form and does not need any special permission.
# Stocks bought during his/her resident status in India, 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 an NRI 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 bank branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the dmat account. Subsequently, a new dmat account in the resident status will have to be opened, securities should be transferred from the NRI dmat account to resident account and then close the NRI dmat account.
# Can an NRI purchase securities by subscribing to public issue (IPO)?
Yes, an NRI can purchases securities thought IPO route and there is no need to obtain any permission by the NRI from RBI or GOI.
# 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.
# Does an NRI require any permission to receive bonus/rights shares?
No.
# Can NRI apply through more than one designated Bank branch?
No. Each NRI has to select one branch for the purpose of investment under Portfolio Investment Scheme (PIS).
# Can an NRI nominate or be nominated in depository account? Whether such nominee can be person resident in India?
Yes.
# Can NRIs obtain loans abroad against the collateral of shares/debentures of Indian companies?
Yes. Authorised dealer have been permitted to grant loans/overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares/debentures of Indian companies held by them, provided the concerned shares/debentures were acquired on repatriation basis.
# Can NRIs invest under portfolio investment scheme out of funds borrowed in India?
No NRIs cannot invest out of borrowed funds in India.
# Can power of attorney holder manage portfolio on behalf of NRIs?
Yes. A power of attorney holder can manage portfolio on behalf of NRIs. However, he cannot effect remittance outside India.
# Can NRIs avail of loan against such securities?
Yes. NRIs can borrow against shares or other securities. However, the loan should be utilized for meeting the borrower’s personal requirements or for his own business purposes.
# Can income earned on Portfolio Investment be remitted abroad?
Income such as interest and dividend earned by NRI from portfolio investments acquired whether on repatriation basis or on Nonrepatriation basis, can be remitted abroad provided applicable taxes
have been deducted/paid. However capital gains can be repatriated only if investment is on
repatriable basis.
# Are NRIs required to file any reports to RBI?
The NRI investor is not required to file any Return or Report with the RBI with regard to acquisition or sale of shares and/ or debentures in an Indian Company. Only the link office of the designated bank branch is required to furnish a report on daily basis on Portfolio Investment Scheme Transactions to RBI.
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