How NRIs can directly invest in the equity market? – this is a very common question among the NRIs who wish to invest in the Indian stock market but don’t know much about the RBI regulations to do the same. I have already written an article on the best investment opportunities for NRIs and investing directly in the equity market is one of them.
Indian economy is booming and the Indian stock market is attracting investors from around the globe. Therefore, most of the NRIs are also looking forward to investing in the Indian Stock Market and to get the most out of their investments. However, Investing directly in the Indian Stock market is not straight forward if you are an NRI. There are many RBI rules and regulations that need to be followed to trade in the Indian Stock Market. In this article, I will be listing all the prerequisites and steps to invest directly in the Indian Stock Market.
Steps To Invest In Equity Market For NRIs
Open an NRE account
Having an NRE (Non-Resident Rupee) account is sort of mandatory for all NRIs. It adds many benefits for the NRIs like attractive interest rates on FDs, tax-free interest in investments. To open an NRE account (if you don’t have it already), you can reach out to any nationalized and RBI approved designated branch of banks like SBI Bank, ICICI Bank, AXIS Bank, HDFC Bank, etc. I am suggesting these banks only because these are leaders in the Indian banking sector, offer the best customer service, and relatively safe. All you need to do is one call, they will reach out to your door and do the needful to open the account. I have had very good experience in opening the NRE account.
You can also go for NRO (Non-Resident Ordinary Rupee) account but it doesn’t offer added benefits as NRE. NRO account is mandatory if you’re earning in India as well like, property rent, pension, etc.
Request For a PIS (Portfolio Investment Scheme) Account
Being an NRI, you cannot simply invest in the equity market and you must have a PIS account linked to your NRE account. So, how does one can open a PIS Account?
You can reach out to the bank in which you have an NRE account and request for the PIS Account.
The bank will ask you to fill a form and take your signature for the same. Make sure to ask all the questions related to account charges, brokerage charges, and any other charges on your transactions related to buying and selling of stocks.
Once, the bank collects information and filled PIS Form, they will send it to RBI for approval. You don’t need to do anything here, it is all done in the background and usually, all the applications get approved by RBI.
Once approved by RBI, your request bank account NRE is designated as a PIS account.
To trade in the equity market, you must have a DEMAT and Trading account and the Demat account has to be linked with the PIS account. Almost most of the banks have these facilities in-house. They will open a DEMAT and Trading account once you request for PIS account with them.
- A Demat account required to hold securities (shares) in electronic format.
- Trading account required to trade in stock exchange i.e. to buying and selling of equity.
That’s it! Once the bank finished linking your PIS account with your Demat account, you can start investing in the stock market. The entire process looks complicated but it’s not. Once you contact the bank for the PIS account, they will guide you and help you in opening all these accounts.
Before you start investing in the stock market, you must know the RBI rules and regulation for the NRIs:
Key Points To Remember Before Investing in the Stock Market
- Intraday Trading is not allowed with PIS account i.e. you cannot buy or sell the same securities i.e. stocks in a single day.
- Short Selling cannot be done with the PIS account. Unlike the residence trading account, you cannot short sell any stock with the PIS account without taking the delivery of a share.
- Only Delivery based trading is allowed when you trade using the PIS account.
- PIS account cannot be opened with a joint account.
- You cannot have more than one PIS account at a time. If you want to open a PIS account with other banks then you must close your existing PIS account first.
- Trading with the PIS account results in heavy brokerage and return on investment charges. Your short term capital gain (if buying and selling of a share happened within a year) will be applied as soon as you book profit.
- Trade made with the PIS account is reported to RBI (reserve bank of India)
- You cannot buy stocks that are breached RBI prescribed FII’s/NRIs investment limits. You can read more about the RBI rules on regulation on the RBI’s official website.
Once you are done with these steps, you are ready to jump into stock market trading. However, one should know about stock fundamentals or consult with their financial advisor before investing in the stock market. Don’t invest in random and advertised/promoted stocks for higher gains in a week or a month.
I hope you found this article useful and helped you to get started with investing directly in the Indian Stock Market. Do let me know if you have any further questions related to PIS account in the comment section.