If you are wondering whether the NRIs can buy shares in India or not then the answer is YES. In the past few decades, India has seen massive developments, one among them being industrial development. By allowing foreign direct investment (FDI) in India, NRIs got a very good platform to invest money and earn profits in the country. NRIs can invest in the Indian stock market under stock exchange schemes where they can acquire shares and convertible debentures of any Indian company.
In the Indian stock market, NRIs can only trade on a delivery basis. Under the Portfolio Investment Scheme (PIS) of the RBI, NRIs are allowed to invest directly in the Indian Stock Market. An NRI can have a single PIS account for investing in the stock market. To invest in the Indian stock market NRIs must have an NRE or NRO account with RBI-approved banks, a Demat account and also a trading account. To open a Demat account an NRI needs to follow all the rules of the Foreign Exchange Management Act (FEMA). To open a Demat account and trading account, an NRI has to go through a Sebi-registered brokerage firm. An NRI can’t transact in India without a stockbroker.
As resident Indians have the facility of a bank account, the PIS accounts hold the invested money of NRIs and can be linked with a Demat and trading accounts. If an NRI purchases any shares via a trading account, the requisite cost of purchase is deducted from the PIS account but the number of shares is credited in the Demat Account. All these investments must be in Indian rupees. Foreign currency investments are not legal.
The amount that is invested by an NRI can be debited from an NRE or NRO account or also be received by inward remittances through regular banking sources. An NRI must hold an NRE/NRO account to subscribe to IPOs (Initial Public Offering). The shares acquired through IPOs can be sold without a PIS account, though shares issued through initial public offerings are not covered under the PIS. In the case of IPOs, the onus is on the issuing company to inform the RBI with regard to the numbers of shares allotted to the concerned NRI.
An NRI can make an Indian resident his nominee in the mutual fund scheme he has invested in. Also, an NRI can become a nominee in the mutual fund scheme of an Indian resident. It is allowed by the fund houses for an NRI to open a joint account with an Indian resident as well.
The limit for an NRI to invest in an Indian Company is 10% of its total paid-up capital, which can be expanded to 24% with the previous approval of the board and the general body of the company passing a special resolution to the same effect, the limit is 20% in the case of Public Sector Banks and it includes State Bank of India as well.
The Reserve Bank of India monitors Foreign Direct investment, daily. For the effective functioning of this feature, the Reserve Bank has set the cut-off points for foreign investments to 2% lower than the actual limit. The cut-off point is fixed to 8% if NRIs invest 10% of the company’s paid-up capital and 22% if NRIs invest 24% of paid-up capital. If any NRI invests in Indian mutual funds or stocks, he must pay TDS. The tax liabilities of an NRI investing in India are no different than an Indian resident and therefore the tax is deducted at source in case of an NRI.
It is not permissible for NRIs to trade shares in India on a non-delivery basis, they cannot conduct day trading and also short-selling, they can sell the stocks only after 2 days of buying them. There are few options for an NRI to invest their money in, such as Fixed Deposits, Fixed Deposits in NRE, NRO, FCNR, National Pension System, Direct Equity, Real Estate, Mutual Funds and Public Provident Fund.
