Investing in Indian stock markets- Guide for NRI’s

For most NRI’s the difficult part about knowing how to go about investing in Indian stock markets is-finding one place where they can get all the required information. There’s isn’t much complicated process involved in opening a share investment account in India. There are only 3 steps involved.
Step 1 : Get your PAN Card
Step 2 : Open an NRE/NRO account.
Step 3 : Open demat/trading account

Step 1: Pan Card
PAN – stands for ‘Permanent Account Number’ and it is just an identification number like your ‘Social Security Number’ in the United States or ‘Social Insurance Number’ in Canada. The PAN card will have your photograph, date of birth and signature on it.PAN is mandatory for everyone who wishes to invest in Indian stock market.
Step 2: NRE/NRO Account.
NRE stands for Non Resident External Account and NRO stands for Non Resident Ordinary account.
How to decide whether you need NRE or NRO account?
Here are some pointers:
Decide whether you want to repatriate (take back your profits/principal from share markets) to your country. If you want to take back the amount then, you should open NRE (Non Resident External) Account and if you do not want to repatriate, open NRO (Non Resident Ordinary) Account.
Please remember that as an NRI you can’t operate normal resident savings bank account i.e. all existing resident bank accounts should be converted to NRO accounts once a person becomes NRI. NRO accounts are generally opened by the NRI’s to deposit previous or existing income earned in India in Rupees.
So, if you have money flowing in from abroad alone, what you need is an NRE account. But, if you have some source of income in India too, you need to open an NRO account.
Step 3- Open Demat/trading account.
Final step would be to open a demat account- an account to maintain your online purchase and sale of shares. Demat and trading account can be opened with any registered broker. That’s it. Once your trading and demat accounts are open, you can invest in Indian share markets. The entire process of transferring funds and buying/ selling can be done online .
General documents required to open a share investment account:
Self attested Copy of Passport & Visa
Self attested Copy of Indian Address proof & Overseas Address proof.
Self attested Copy of Pan Card
Passport size photos.
Bank statement for 3 months
A cancelled cheque and a cheque for initial investment.
Other important informations:
It is always better for an NRI to operate through a power of attorney holder in India. There are many investors who do this and it’s also a lot easier and faster.
NRI’s can invest in the Indian stock market under PIS (Portfolio Investment Scheme) which is regulated by RBI.
Port folio Investment scheme is a Scheme is regulated by Reserve Bank of India (RBI). RBI monitors the investments made by non-residents so that it can keep a tab on money flowing into India from outside the country.
NRI’s are not allowed to trade in the stock market on day to day basis. i.e., you cannot buy and sell on the same day (Day trades or intra day trades as it’s usually called). Day trades are akin to speculation. NRI’s are not allowed to speculate on a day-to-day basis in the markets.
You can nominate only one bank account for your stock trading.
Futures and Options are not permitted for NRI’s.
Individually any NRI or a PIO cannot invest more than 5% stake in any Indian company.
NRE bank account- explained
NRE means Non Resident External rupee bank accounts.
Balances held in NRE accounts can be repatriated abroad freely. This account is used for depositing money from abroad. An NRE account keeps the money in Indian Rupee. NRE account will let you convert your original foreign currency investment into Indian Rupees for investment in India and then convert it back to the foreign currency.
These accounts cannot be held jointly with residents. But, Joint operation with other NRIs is permitted.
A Power of attorney can be granted to residents for operation of accounts. Money once deposited in this account can only be withdrawn for local payments including investments.
Interest on deposits in an NRE accounts is tax free in India. The balance lying on the account does not attract wealth tax. Any gifts given from the money lying in this account does not attract gift tax.
Once you have the NRE account, you can invest funds to share market.
Those who already have NRE bank accounts should check with their bankers to find out whether those are suitable for stock investments. Not all NRE/NRO bank accounts are suitable for investments.
Investors should make sure you read all the fine prints regarding charges applicable.
NRI vs PIO
A Non-resident Indian (NRI) is a person who is a citizen of India or a person of Indian origin, currently residing outside India. To qualify for NRI status you must:
(1) Reside outside India for more than 182 days per year, and;
(2) Hold Indian citizenship, or;
(3) Be a Person of Indian Origin (PIO) as defined in the Foreign Exchange Management Deposit Regulations of 2000
Condition no.1 is mandatory and condition 2 OR 3 should be satisfied
A PIO (Person of Indian Origin) means a citizen of any country other than Bangladesh or Pakistan, if-
1. He at any time held Indian passport or
2. He or either of his parents or any of his grand- parents was a citizen of India or
3. The person is a spouse of an Indian citizen or a person referred to in 1 or 2 above.