Non-resident Indians (NRIs) and People of Indian Origin(PIO) can invest in the Indian stock market, though they must follow regulations that are strict than those govern local investors.
Every NRI must know before he invests in mutual funds in India
- NRIs must gain approval under the portfolio investment scheme. It is given by banks. A human can deal with only one bank at a time.
- Intraday trading is prohibited — it implies no speculation. Shares can be sold only at least two days after buying. The practice of buy-today sell-tomorrow isn’t possible in this.
- Can purchase only up to 5 percent of the paid-up capital of a company. Under this regulation, shares of certain companies cannot be purchased. Know more @ Reserve Bank of India (RBI) page.
- Short-selling is not allowed. NRIs need to pay in full for buying shares. Can sell only what is in hand.
- Must report contract notes daily to banks. The bank is responsible for reporting it to the RBI.
- Must do bill-to-bill payment. No adjustments are allowed. Payment should be made separately while buying and selling.
- Can apply for and invest in initial public offering (IPO) and mutual funds, but only through NRE or NRO accounts.
- Futures and options (F&O) transactions must be carried out through NRO accounts. The National Stock Exchange (NSE) will issue a special code for such deals. It should be quoted with the client code while conducting share transactions.
Restrictions on NRI investing in Indian Stock Market
Apart from an NRE account, a PINS (Portfolio Investment Scheme) account and a DMAT account here are some additional restrictions on NRI investment on Indian Stock Market.
1) While opposed to residents, non-resident Indians (NRIs) cannot do day trading. It means they must take delivery of stocks, i.e. if you purchase a stock today, you can only sell it after 2 days once the settlement of the previous transaction has happened and the stock is credited into your DMAT account.
2) An NRI cannot hold more than 10% of total holding in India listed company. (20% in case of public sector banks, for instance, SBI (State Bank of India))
3) Only one PINS account is allowed to NRI. You cannot operate more than one PINS account.
4) NRIs must inform their bank and broker about any change in their status and update KYC immediately.
- Note: NRI trading accounts are regulated by both the RBI and the Securities and Exchange Board of India (SEBI). Transactions that do not comply with rules could attract severe penalties, including under the Foreign Exchange Management Act (FEMA).