Can NRIs invest in the Indian stock market?

by Manshu on November 14, 2012

in NRI

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.

Conclusion

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.

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{ 10 comments… read them below or add one }

CA Karan Batra November 14, 2012 at 3:00 pm

Hi Manshu

Very informative post on how NRI’s can invest in India.

I would highly appreciate if you could author another post on How Indian’s can invest in Shares listed on the New York Stock Exchange. I heard that its possible for Indians to invest in Shares listed on NYSE but not sure about how to invest..

Reply

Manshu November 14, 2012 at 9:30 pm

I think I can do a post on that. Thanks for the idea.

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Mayank Gupta November 14, 2012 at 8:47 pm

Hi Manshu
In fact we would love to know about ADR and GDRs also. I mean how do they work

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Manshu November 14, 2012 at 9:31 pm

That’s also a good suggestion, I think I may have written about them earlier, but if not, I will certainly write about them now.

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bemoneyaware November 16, 2012 at 12:02 pm

Informative post.
We have an article on NRI NRI
which might help your readers. It talks about
Who is NRI? What is definition of NRI? Does NRI differ from Person of Indian origin (PIO), What is Remittance, Repartation? What are the investments that NRI can make in India? Is it different from Resident Indians? What is paperwork involved to do changes in investments already done on becoming an NRI? What are different kinds of bank accounts that an NRI can open – Non-Resident External (NRE) accounts, Non-Resident Ordinary Rupee (NRO) Accounts, Foreign Currency Non Resident (Bank) Accounts. What are difference between them?

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Raja November 18, 2012 at 5:43 pm

Hi Manshu,

Looks like, one category of NRI’s, that is, professional’s visiting other countries for short term (like few years) will not be considered as NRI’s under FEMA and should go by the IT Act in determining the NRI status.

Coming to the 2nd option of investing in direct equities, i think it’s not at all feasible on part of NRI’s to operate a PIS account when the universe of stocks is so restricted.

I am investigating some other options like via gifts to parents and investing in their name …any idea on that ? thinking of consulting a tax and legal expert on that angle this time.
Regards
Raja

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Manshu November 18, 2012 at 11:59 pm

I’m not sure about that option Raja, I guess it should be okay as long as parents declare the income in their own names and then pay taxes on that but then are there any restrictions on what you can do money that’s received as gift or for family maintenance? I don’t know the answer to that. I can try finding that out and if you find out anything please do let me know.
Thanks as always for your great comments.

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ankurm January 31, 2013 at 1:49 pm

Assume a resident Indian leaves India for the first time for employment. Can his previously existing resident rupee savings & term deposits (before he went abroad) be converted into NRO accounts? Or he can continue to operate previous accounts like a resident?

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Manshu February 1, 2013 at 6:05 pm

I don’t think it can be converted but opening a new one is easy enough and if you are going on a short term then there is no need. IF for a long term then it is better to do it from India itself as there are a lot of hassles to do it from outside. Open both NRO and NRE accounts.

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m kasim June 25, 2014 at 3:59 am

Hi Manshu
My in laws are planning to put some money for my minor kids( in USA ) in fixed saving deposits in India. Am i liable to report that on my taxes, and pay taxes on any profitable returns.

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