With the advent of technology in the financial industry, there has been a substantial increase in the number of non-resident Indians (NRIs) investing in India. Moreover, the economic growth in India and has also induced the financial markets tremendously.
With Dematerialization, an NRI can easily maintain and streamline his/her investments with the help of a depository participant (DP). Moreover, the ease of data management when an investor is not physically present in India is also an added advantage that Dematerialization offers.
Dematerialization is the process of converting physical securities with an equal number of securities in an electronic form and crediting the same to the investor’s demat account. Not only has Dematerialization brought forward the concept of the electronic holding of shares for Indians, but it has also paved the way for many NRIs who wish to reap the benefits of investment.
Similar to opening a bank account, an NRI can open a demat account with a DP, which converts the physical holding of securities to electronic balance. An NRI also has the opportunity to either convert their existing physical certificates or purchase new certificates in dematerialized form.
How To Get Started?
By the laws administered by Foreign Exchange Management Act (FEMA), NRIs can invest in the Indian share markets in local currency, i.e., the rupee. Mutual fund corporations in India are not permitted to accept securities in foreign currency. Thus, for investing in the Indian stock market, an NRI must open one of the three bank accounts mentioned as follows:
1. Non-resident External Rupee (NRE) account – An NRE account can be opened with funds generated from overseas. This is a rupee account from which the funds can be transferred back to your home country.
2. Non-resident Ordinary Rupee (NRO) account – An NRO account is a non-repatriable rupee account wherein the funds cannot be transferred back to the NRI’s home country nor can they be changed to a foreign currency.
3. Foreign Currency Non-resident Account (FCNR) with an Indian bank – An FCNR account is similar to the NRE account, except the funds are retained in a foreign currency.
Buying Shares As An NRI
If you are an NRI, buying shares has become much easier with Dematerialization. All you need to do is open a demat account under the Portfolio Investment Scheme (PINS). By doing so, you can purchase shares with the funds in your NRE account and transaction can be directly credited to your NRE account for repatriation. If you purchase shares on non-repatriable basis, then the transaction will be credited to your NRO account. If the shares obtained are via investment funds that can be repatriated, then they need to be maintained in a particular demat account. Likewise, shares obtained from non-repatriable funds must be held in a separate demat account.
You must keep two different demat accounts for repatriable and non-repatriable shares. Moreover, the Reserve Bank of India also states that an NRI must have two different accounts linked to the PINS demat account. Once you become an Indian resident again, you must close your PINS account.
Open a Demat Account and Get Started
In the Indian share market, demat accounts play a significant role in an NRIs investment journey. The opening of a demat account is perhaps the first step of investment in India. If you’re a first-time investor, you can maintain a demat account with a registered Indian bank or brokerage firm.
The designated financial institution provides you with a PIS letter, which is a receipt stating that you have now a PIS account and you are authorized to invest in the Indian markets. With other important documents, the PIS letter has to be submitted to start NRI trading and demat accounts.
To invest successfully, it is essential to monitor the Indian markets thoroughly and have a reliable information source that enables you to make more profitable investment decisions.
An NRI demat account can be maintained by the power of attorney(s) (POA) who must be a citizen of India irrespective of their residential status. With an NRI demat account, nomination facility is also available. Having a POA makes it operationally easier for an NRI as they can manage your financial transactions and bank accounts for you.
A POA is authorized to manage virtually all financial matters such as buying and selling real estate, operating bank accounts, renting property, issuing cheques from an account, signing a tax form, etc. A POA holder, however, cannot open a bank account on your behalf. They can only operate a bank account once it is opened by you. Moreover, a resident holder of POA cannot repatriate funds outside of India. He/she can only repatriate funds to the foreign bank account of the account holder.
NRI investment in India is gaining momentum due to an overabundance of factors supporting the growth of the Indian economy. NRIs who wish to invest in mutual funds, shares, bonds, and debentures of Indian companies can opt for a demat account. Well-regulated capital markets coupled with an advanced banking policy has further improved the NRI investment scenario!