The Indian stock market offers Non-Resident Indians (NRIs) a lucrative opportunity to participate in one of the world’s fastest-growing economies. With proper guidance, NRIs can seamlessly invest in Indian equities, mutual funds, and other financial instruments. This comprehensive guide explains how NRIs can buy shares in India, open a Portfolio Investment Scheme (PIS) account, select a broker, understand investment limits, repatriation rules, and tax implications. Whether you’re new to investing or looking to diversify your portfolio, this step-by-step guide on NRIGlobe.com will help you navigate the process.

Who is an NRI?

Under the Foreign Exchange Management Act (FEMA), an NRI is an Indian citizen or Person of Indian Origin (PIO) residing outside India for employment, education, or business, staying abroad for 183 days or more in the preceding financial year. NRIs, including Overseas Citizens of India (OCI) and PIO cardholders, are eligible to invest in the Indian stock market, subject to specific regulations set by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

Step-by-Step Guide to NRI Stock Market Investment

Step 1: Open an NRE or NRO Bank Account

To invest in the Indian stock market, NRIs need an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) bank account with an RBI-authorized bank. These accounts serve as the foundation for routing investments.

• NRE Account: Ideal for repatriable investments, allowing full transfer of principal and profits abroad. Funds in an NRE account are held in foreign currency and converted to INR for transactions. Interest earned is tax-exempt under the Income Tax Act, 1961.
• NRO Account: Suitable for non-repatriable investments, managing income earned in India (e.g., dividends, rent). Repatriation is limited to USD 1 million per financial year after tax deductions.

Choose an account based on your repatriation needs. Popular banks like ICICI, HDFC, Axis, and IDFC FIRST Bank offer NRE/NRO accounts with PIS facilities.

Step 2: Apply for a Portfolio Investment Scheme (PIS) Account

The Portfolio Investment Scheme (PIS), regulated by the RBI, allows NRIs to invest in Indian stocks and convertible debentures through recognized stock exchanges like the BSE or NSE. A PIS account is mandatory for direct equity investments on a repatriable basis and optional for non-repatriable investments via an NRO account.

• Process: Contact a designated bank (e.g., HDFC, ICICI, or Axis) authorized by the RBI to obtain PIS approval. Submit documents like your PAN card, passport, OCI/PIO card, foreign address proof, and a cancelled cheque from your NRE/NRO account. The process typically takes about two weeks.
• PIS vs. Non-PIS: A PIS account is linked to an NRE or NRO account for stock market transactions and requires RBI reporting. Non-PIS accounts, linked only to NRO accounts, offer flexibility for investments like mutual funds, futures and options (F&O), and IPOs without RBI reporting but have repatriation limits.

NRIs can maintain one PIS account per bank for NRE and NRO accounts, but not multiple PIS accounts with different banks unless the existing one is closed.

Step 3: Open an NRI Demat and Trading Account

To hold and trade securities, NRIs need a Demat account (to store securities electronically) and a Trading account (to execute buy/sell orders). These accounts must be linked to your NRE or NRO bank account.

• NRE Demat Account: For repatriable investments, linked to an NRE bank account. Proceeds from sales and dividends are credited to the NRE account and can be fully repatriated.
• NRO Demat Account: For non-repatriable investments, linked to an NRO account. Only the principal amount is repatriable up to USD 1 million per financial year after taxes.
• Documents Required:
  • Duly filled account opening form
  • PAN card
  • Passport and visa/OCI/PIO card
  • Foreign and Indian address proof
  • Cancelled cheque from NRE/NRO account
  • Passport-size photographs
  • Self-attested documents, notarized by the Indian Embassy, consulate, or local authority

Brokers like Zerodha, Angel One, ICICI Direct, and ProStocks offer NRI Demat and trading accounts, often with online or offline account opening processes.

Step 4: Select a Reliable Broker

Choosing the right broker is critical for seamless trading. Consider the following when selecting a broker:

• SEBI Registration: Ensure the broker is registered with SEBI and a member of BSE/NSE.
• Brokerage Fees: Compare fees, as some brokers charge a flat fee (e.g., ₹100-₹200 per trade) while others charge a percentage (0.5%-1.25% of transaction value). ProStocks, for example, offers low-cost trading with zero AMC for Demat accounts.
• Services Offered: Look for brokers providing research reports, portfolio tracking, and PIS integration. ICICI Direct offers a 3-in-1 account (Demat, trading, and bank account) for convenience.
• Custodial Services: For F&O trading, brokers like Zerodha partner with custodians (e.g., Orbis) to provide a Custodian Participant (CP) code.
• Ease of Account Opening: Some brokers, like IDFC FIRST Bank, offer fully online processes, while others, like Angel One, require offline submission.

Popular brokers for NRIs include Zerodha, Angel One, Motilal Oswal, Sharekhan, and SBI Securities. Research services, fees, and customer support before deciding.

Step 5: Understand Investment Limits

NRIs face specific investment limits under the PIS:

• Individual Limit: An NRI can invest up to 5% of the paid-up capital of a listed Indian company.
• Aggregate Limit: Total NRI investment in a company is capped at 10% of its paid-up capital, which can be raised to 24% with a special resolution from the company’s general body.
• Sectoral Restrictions: NRIs cannot invest in certain sectors like atomic energy, railways, chit funds, or agriculture (except real estate development).

For mutual funds, there are no maximum investment limits, making them a flexible option for NRIs.

Step 6: Execute Trades and Manage Investments

Once your accounts are set up, you can start trading through your broker’s platform:

• Direct Equity: Buy/sell shares of listed companies on BSE/NSE under PIS. Only delivery-based trading is allowed; intraday trading is prohibited.
• IPOs: NRIs can invest in IPOs using NRE/NRO accounts without PIS approval.
• Mutual Funds: Invest directly through NRE/NRO accounts without a Demat account. NRIs from the USA and Canada may face restrictions with some AMCs due to FATCA/CRS compliance.
• F&O Trading: Allowed only through NRO non-PIS accounts with a CP code.

Funds for purchases are debited from your NRE/NRO PIS account on T+1 day, and sale proceeds are credited similarly after tax deductions.

Step 7: Understand Repatriation Rules

Repatriation refers to transferring investment proceeds abroad. Rules depend on the account type:

• NRE Account (PIS): Full repatriation of principal and profits (e.g., capital gains, dividends) is allowed after tax deductions, subject to FEMA compliance. A CA certificate (Form 15CB) may be required.
• NRO Account (Non-PIS): Repatriation is limited to USD 1 million per financial year (April-March) after tax payments.
• Non-PIS NRO Account: Offers flexibility for F&O, mutual funds, and IPOs but has the same repatriation limit.

Brokers assist with repatriation by providing periodic statements and ensuring compliance with RBI/SEBI guidelines.

Step 8: Comply with Tax Regulations

NRIs are subject to taxes on their Indian stock market investments, similar to resident investors, with benefits under Double Taxation Avoidance Agreements (DTAAs):

• Capital Gains Tax:
  • Short-Term Capital Gains (STCG): For shares held less than 12 months, taxed at 15% + applicable cess.
  • Long-Term Capital Gains (LTCG): For shares held over 12 months, gains above ₹1 lakh are taxed at 10% + cess.
• Dividend Income: Taxed at 20% (subject to DTAA benefits, which may reduce the rate). Tax is deducted at source (TDS) by the company or broker.
• Tax Exemptions: Interest on NRE accounts is tax-exempt. DTAAs with countries like the USA, UK, or Singapore can reduce tax liability.

Consult a chartered accountant to optimize tax planning and ensure compliance with Indian tax laws and DTAAs.

Additional Tips for NRI Investors

• Update KYC: If your residency status changes (e.g., from resident to NRI), inform your bank and broker to redesignate accounts. Transfer securities to an NRI Demat account and close the resident account.
• Power of Attorney (PoA): Appoint a mandate holder or PoA to manage investments in India.
• Research Brokers: Compare brokers for low fees, robust platforms, and NRI-specific services. ProStocks offers zero AMC, while ICICI Direct provides a seamless 3-in-1 account.
• Diversify Investments: Explore mutual funds, ETFs, bonds, and IPOs to balance risk and returns. Mutual funds are ideal for NRIs seeking simplicity, as they don’t require a Demat account.
• Monitor Charges: Be aware of brokerage fees, Demat AMC, platform fees, and statutory charges like GST, STT, and stamp duty.

Why Invest in the Indian Stock Market?

India’s stock market is attractive for NRIs due to its high growth potential, driven by a robust economy and favorable demographics. Benefits include:

• High Returns: Equities and mutual funds offer the potential for significant capital gains.
• Diversification: Indian markets provide exposure to diverse sectors like IT, finance, and infrastructure.
• Sustained Income: Dividends and interest from securities provide steady income.
• Tax Benefits: NRE accounts offer tax exemptions, and DTAAs reduce double taxation.

Conclusion

Investing in the Indian stock market as an NRI is a rewarding opportunity when navigated correctly. By opening NRE/NRO accounts, obtaining PIS approval, selecting a SEBI-registered broker, and understanding limits, repatriation, and taxes, NRIs can build wealth while complying with RBI and SEBI regulations. Platforms like NRIGlobe.com provide resources to simplify this journey. Start your investment journey today by opening a Demat account with trusted brokers like Zerodha, Angel One, or ICICI Direct, and leverage India’s economic growth for long-term financial success.

Disclaimer: Always consult a financial advisor or chartered accountant for personalized advice. Investment in the stock market is subject to market risks; read all scheme-related documents carefully.