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Here’s investing in Mutual Funds could prove to be a good financial decision:

Who is an NRI?

An NRI is an Indian citizen who stays outside India.
a. For purposes of carrying out employment or any business or vocation.
b. Under circumstances indicating an intention to stay outside India for an uncertain duration.
Any Indian citizen deputed outside India for a temporary period in connection with employment.

Who is a PIO?

A citizen of a foreign country (other than a citizen of Bangladesh or Pakistan) is a PIO if:

  • He/She at any time held an Indian Passport OR
  • He/She or either of his parents or any of his/her grandparents was a citizen of India OR
  • Spouse (not being a citizen of Bangladesh or Pakistan) of an Indian citizen (a) or (b) above.

What are the products offered to NRI?

NRI can invest in the following products.

  • Equity trading on BSE and NSE
  • Derivatives trading on the NSE
  • IPO online
  • Portfolio Management
  • Investments in Mutual Funds

What steps an NRI needs to take to start investing in the Indian Stock Market?

  • An NRI should open a new bank account (NRE/NRO or both) with designated bank which is approved by RBI (Reserve Bank of India) for this purpose.
  • He should apply for a general approval for investment in Indian Stock Market through his designated bank branch.
  • He should open a Demat Account with an NBFC to hold his shares and register to execute his buy/sell orders on the stock exchange(s).

What type of saving bank account(s) can be opened by an NRI or PIO in India?
Any NRI/PIO can open two types of savings accounts with any bank in India. They are NRE and NRO bank accounts.

What is a NRE account?
A NRE bank account is an external saving bank account opened for Non resident Indians. This is why it is known as Non-Resident External account. Since it is an external account, any monies lying in NRE account can be taken outside the country or in other words, the monies lying in NRE account are fully repatriable. This money can be converted into any foreign currency at the behest of the account holder and can be remitted outside the country.

What is a NRO account?
A NRO bank account is an ordinary saving bank account opened for Non resident Indians. This is why it is known as Non-Resident Ordinary account. Since it is an ordinary account i.e. as good as a normal saving bank account, monies lying in NRO account cannot be taken outside the country or in other words, the monies lying in NRO account are not repatriable.

Can money be transferred from NRE account to NRO account?
Yes money can be freely transferred from NRE account to NRO account.

Can money be transferred from NRO account to NRE account?
No, money cannot be transferred from NRO account to NRE account.

What is the status of NRO/NRE accounts on the return of the account holder to India?
RBI has advised banks to re-designate such accounts as resident accounts on return of the account holder to India.

In case a resident Indian becomes a non-resident, 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, but has to transfer the shares to his NRO (Non Resident Ordinary) account

Can NRIs invest in shares, debentures and units of Mutual Funds in India?
NRIs are permitted to make direct investments in shares/ debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e . purchase of share / debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis.

NRIs subscribe to public issues? What are the permissions/approvals required?
Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from GOI/RBI. Therefore, individual NRI need not obtain any permission.

Does an NRI require any permission to receive bonus/rights shares?

What is PIS?

Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) defined in Schedule 3 of Foreign Exchange Management Act 2000 under which the ‘Non Resident Indians (NRIs)’ and ‘Person of Indian Origin (PIOs)’ can purchase and sell shares and convertible debentures of Indian Companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch.
Any NRI or a PIO wanting to trade/make fresh investments in the Indian Equity Secondary Market needs and must have one PIS account with only one designated bank in India.

PIS account is applicable only for NRIs and not for resident Indians.
It is only for trading in Indian markets and not any other foreign markets.
It is applicable only for equity trades and not MF investments.

What are the types of PIS account?

There are two types of PIS account:

NRE PIS account
NRO PIS account

Why is PIS required?
For all the Indian companies or companies listed on Indian stock exchanges, there are certain limits which have to be monitored under FEMA regulations. For any company the foreign investment into that company cannot cross certain limit. This limit is different from company to company and sector to sector. Also individually any NRI or a PIO cannot invest more than 5% in any Indian company.

How many PIS account can a NRI open?
NRI/PIO can open only one PIS account with any designated banks (Preferred bank – UTI Bank) in a prescribed format for PIS account, upon which the bank can issue a PIS approval letter to the investor.

Can I invest in all products through PIS account?
No. Any investment done in secondary market should be routed through a PIS account. For other products the investment can be done through direct subscription route.

What is a NON PIS Account?
It is a normal savings bank account which can be opened with any bank in India. Non-PIS is an account for which the transactions are not reported to RBI. This account takes care of selling all those shares which are not allowed under PIS. Shares acquired under IPO or received as gift or bought as resident Indian can be sold under Non-PIS account.

What are the types of NON PIS Account?

There are two types of NON PIS account

NRE NON PIS account
NRO NON PIS account

What type of transactions is allowed under NON PIS account?

Sale of shares which were acquired other than PIS.
Shares acquired through IPO’s.
Gifts from relatives or otherwise.
Shares bought as resident Indian.
Fresh acquisition through IPO’s.
Investment in Mutual Funds.

What is meant by investment through direct subscription route?
As per the regulations NRIs are allowed to invest up to a certain percentage of the total paid up capital of the company by directly subscribing to the equity/convertible debentures of the company either though a public offering made by the company or through private placements on one to one basis. Regulations provide for different ceilings on such investments based on the industry to which the company belongs and also the nature of investments (repatriation / non-repatriation basis).

Do investments made through IPO’s or Private placements come under PIS?
No. Investments made by NRIs though subscription to Initial Public Offerings (IPO’s) or Private placements are not covered by Portfolio Investment Scheme. Such investments are covered by RBI’s regulations with regard to Foreign Direct Investments.

Do NRIs need any permission of RBI to subscribe for IPO’s or Private placements of equity shares/convertible debentures of existing or new companies?
No. NRIs do not require any permission to invest though Initial Public Offerings (IPO’s) or Private placements. In such cases, the Issuing Company should comply with all necessary regulations for issuing securities to a person resident outside India.

Do NRIs need approvals from RBI for selling securities acquired through IPO’s/Private Placement?
No. NRIs can sell such shares/debentures on the Exchange without any approval. However, while seeking the credit of sale proceeds to NRE/NRO account, the bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.

Can an NRI have investments under PIS on repatriation and non-repatriation basis?
Yes. Investment can be made on repatriation as well as non-repatriation basis. However, an NRI will have to open NRE account as well as NRO account with designated bank branch as the sale proceeds of non-repatriation investment can only be credited to NRO account.

Under what circumstances can investments made under PIS are repatriated?
The repatriation of the sale proceeds, net of taxes, are allowed if the original purchase was made on repatriation basis and such investments were made out of funds from NRE/FCNR account or by means of remittance from abroad.

What are the provisions for corporate benefits for investment on repatriation and non-repatriation basis?
Corporate benefits may be in the form of dividend, interest, rights, bonus, etc. Any corporate benefit resulting out of investment in securities on non-repatriation basis will not carry the right of repatriation. Similarly any corporate benefit resulting out of investment in securities on repatriation basis will carry the right of repatriation. This is subject to change depending on prevailing RBI regulations.

Where can an NRI/PIO open a demat account?
NRI/PIO needs to open a demat account with an NBFC as explained above.

Can investments made under different schemes be held under a single demat a/c?
No. Securities received against investments under ‘Foreign Direct Investment scheme (FDI)’, ‘Portfolio Investment scheme (PIS)’ and ‘Scheme for Investment’ on non – repatriation basis have to be credited into separate demat accounts. Investment under PIS could be on repatriation or non – repatriation basis. Investment under FDI scheme is on repatriation.

What is the procedure of Dematerialization?
Client submits a DRF form along with the physical share certificate to NBFC, who in turn forwards it to the Registrar & Transfer agent for confirmation from the company. After the confirmation is received the client a/c is credited.

What is TDS?
As per regulatory guidelines, Tax (if applicable) has to be deducted at source for all the profits done in the equity market transactions. Before crediting sales proceeds it is the responsibility of the broker and the PIS cell to determine the appropriate Tax and deduct it at source.

What are the types of rates applicable?

TDS rate is different as per the tenure of the investment. It can be classified into

Long-term capital gain – If the period of holding is more than 1 year i.e. the difference between the date of purchase and sell is more than 1 year, then the TDS rate applicable is 0 %. Before 1st Oct 2004 this rate was 10% now it is tax-free.
Short-term capital gain – If the period of holding is less than 1 year i.e. the difference between the date of purchase and sell is less than 1 year, then the TDS rate applicable is 10%. Before 1st Oct 2004 this rate was 30%.
How is TDS computed?
TDS is computed on the profit amount or the gain as per the applicable rate i.e. short term or long term on a First-In, First-Out (FIFO) basis.

How the TDS deducted and money is transferred to the bank account?
For any TDS to be deducted and money to be remitted to bank account, there are three things which have to be verified.
1. Amount of gain = Selling price – Purchase price
2. Duration of holding i.e. long term or short term = Selling date – Purchase date
3. Source of fund for purchase i.e. NRE or NRO
Important: TDS is deducted only at the time of crediting sales proceeds.

What is PMS?
Portfolio Management Services provides the benefits of diversification across assets, sectors, and funds. The experts in Portfolio Management combine best of breed investment of avenues as they aim to achieve optimal returns at managed levels of risk. It is transparent collective investments.

What is Mutual Fund?

A mutual fund is nothing more than a collection of stocks and/or bonds. You can make money from a mutual fund in three ways:

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital Gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit.

How do I invest in Mutual Funds?
You can invest in Mutual Funds through NON PIS account.

How much is the risk involved while investing in Equity Investments?
Equity investments are subject to market risks and there is no assurance or guarantee that the objective of the portfolio management service will be achieved. As with any investment in securities, the net asset value of the managed portfolios can go up or down depending on the factors and forces affecting capital markets. Past performance of the portfolios does not indicate the future performance.

What is International Equity Commodity?
International Equity division provides an opportunity for investors to scale up their investment horizon, by tapping into International Equity and Commodities markets.

For more information, please contact us.