NRIs (Non Resident Indians) are allowed to invest in the Indian stock market and while I’ve felt the paperwork and the methods are a little cumbersome to do so, there are many NRIs who regularly invest in the Indian stock market and I’m sure like most other things, once you overcome the initial setup hassles and teething troubles, this process isn’t all that bad.
In my mind, there are three main ways for NRIs to invest in the Indian stock market.
1. Invest in India based ETFs
The US and UK have ETFs that allow you to invest in the Indian stock market without having needing to do any additional paperwork or documentation with an Indian bank or broker.
These ETFs trade in their respective countries in their respective currencies and you can trade in them like you would trade in any other stock.
There is one big thing to consider when you buy India based ETFs.
They will be impacted by the exchange rate movements, which means that along with the underlying asset, which is usually the Nifty, this ETF will also be impacted if the Rupee goes up or down against the host currency.
Also, this ETF is just not for NRIs, and anyone living in the country can buy these ETFs. Here is a list of India based ETFs in the US that I did some time ago.
2. Invest Directly in Indian Stocks
NRIs can also invest directly in Indian stocks, but they need to set up some accounts before they can do this.
First, you either need a NRE or a NRO bank account, then you need an approval under the PIS (Portfolio Investment Scheme) which allows you to invest in the Indian stock market, and then you also need a Demat account to transact in India. Usually, banks can help you get this approval and the same bank can help you open a NRE / NRO account, get a PIS approval and open a Demat and a trading account.
When you have all this done, you can invest in Indian stocks but not all stocks are eligible for NRI investment. RBI publishes a list that shows you which stocks are or aren’t eligible for NRI investing.
3. Invest through Indian mutual funds
NRIs can also invest in Indian mutual funds and you need a bank account in India like the NRE or NRO account to invest in mutual funds. As far as I understand, you don’t need to have PIS approval or a Demat account in order to invest in mutual funds. If anyone knows differently then please leave a comment and let me know.
These are the three ways for a NRI to invest in India, and when you actually go down to the execution of these ways you will find that it is difficult to do all the paperwork or even get answers to your questions if you are going for the second or third route, which is why you see a lot of Indians sending money home to their parents or spouses and then letting them invest this on their behalf. These things have their own complications and it’s just better to face the trouble to have everything setup correctly at the beginning rather than face trouble later on down the road.