India’s stock market continues to attract investors globally, and many Non-Resident Indians (NRIs) want to participate in India’s equity markets. the country’s long-term growth story. The good news is that NRIs can legally invest in Indian stocks and equities, mutual funds, ETFs, and IPOs. They can even trade in Futures & Options (F&O), subject to SEBI, RBI and FEMA regulations.
However, NRIs cannot use a regular resident savings account or standard trading account. They must follow a specific investment framework involving NRE/NRO banking, PIS approval for NRE, and dedicated NRI trading accounts.
Key Takeaways
- An NRE or NRO account is mandatory for NRIs to invest in Indian stocks, mutual funds, IPOs, and derivatives.
- RBI’s Portfolio Investment Scheme (PIS) approval is required for equity trading.
- NRIs cannot do intraday trading in Indian equities.
- F&O trading is allowed only through an NRO account.
- Taxes are deducted automatically through TDS mechanisms.
Steps for NRIs to Open A Demat Account
Here’s a complete step-by-step guide explaining how NRIs can open a demat account if they want to invest in the Indian stock market: .
Step 1: Open An NRE Or NRO Bank Account
The first step for any NRI investor is opening an NRE or NRO bank account.
NRE Account
An NRE (Non-Resident External) account is mainly used for parking foreign earnings in India. The invested amount and any eligible credited amount can be freely sent back abroad to the person's country of residence.
NRO Account
An NRO (Non-Resident Ordinary) account is used to manage income earned within India, such as rent, pension, or dividends. Repatriation from an NRO account is allowed within RBI-prescribed limits.
Most major Indian banks offer both account types for NRIs.
Step 2: Get RBI PIS Approval
NRIs investing in Indian equities need permission under the RBI’s Portfolio Investment Scheme (PIS).
The PIS account helps monitor:
- Share purchases and sales
- NRI investment limits
- Fund movement linked to stock transactions
The bankprovides PIS approval.
Step 3: Open An NRI Demat And Trading Account
Once banking and PIS formalities are complete, NRIs need:
- A Demat account to hold shares electronically
- A Trading account to buy and sell securities
These accounts must be linked with the NRE or NRO account for seamless fund settlement.
NRIs can open accounts with SEBI-registered brokers.
Documents Required for NRI Demat Account
NRIs generally need the following documents:
- PAN
- Passport (Arrival page, front page, Back page)
- Visa/Residence permit
- Overseas address proof – Passport, Driving License, Utility bill (Electricity bill / gas bill/ water bill – Not more than 3 months old), Original bank statement along with BVL (Bank Verification Letter)
- Indian address proof – Passport, Voter’s ID, Utility bill (Not more than 3 months old), Driving license, original bank statement along with BVL (Bank Verification Letter), Valid Leave and license agreement/ Purchase agreement
- Saving Bank proof
- PIS approval letter (wherever applicable)
- OCI or PIO card copy (where applicable)
Foreign passport holders must additionally provide OCI or PIO documentation.
NRE vs NRO
| Feature | NRE (Non-Resident External) Account | NRO (Non-Resident Ordinary) Account |
| Core Purpose | Holds foreign income in Indian Rupees (INR). | Holds income earned in India, such as rent, dividends and pension. |
| Tax on Interest | Interest earned is tax-free in India. | Interest is taxable in India and is subject to TDS, as applicable. |
| Investment Type | Suitable for fully repatriable investments, allowing funds to be transferred abroad without restrictions. | Suitable for restricted repatriation, subject to RBI prescribed limits. |
| TDS Responsibility | TDS is handled by the banker. | TDS is handled by the broker. |
NRI Repatriation Rules
Repatriation means transferring your investment money and profits from India to your country of residence. The rules depend on whether you invested through an NRE account or an NRO account.
- Investments Through an NRE Account
If you invest using an NRE account, the original investment amount and any amount credited from eligible investment transactions can be transferred abroad without any limit. No separate RBI approval is required for repatriation.
- Investments Through an NRO Account
If your investments are linked to an NRO account, repatriation is subject to RBI regulations. You can transfer up to USD 1 million per financial year (including eligible balances) after complying with regulatory requirements.
To repatriate funds or transfer money from an NRO account to an NRE account, you must submit Form 146 (self-declaration) and Form 145 (certificate from a Chartered Accountant confirming that applicable taxes have been paid). Additionally, you may be required to submit other documents as requested by the Bank
What Is RBI's Portfolio Investment Scheme (PIS)?
The Portfolio Investment Scheme (PIS) is an RBI-approved framework that allows NRIs to buy and sell shares of Indian companies on recognised stock exchanges. Here are some of the key points about PIS:
- One Bank Rule:An NRI can link their PIS permission to only one designated bank at a time.
- Investment Limits: PIS helps ensure that the overall investment by NRIs in any listed Indian company remains within RBI-prescribed limits.
- How It Works: When you buy or sell shares, your broker sends the transaction details to your designated PIS bank. The bank settles the transaction through your linked NRE or NRO account and reports it to the RBI.
Segments Allowed for NRI Trading
- Cash delivery
- Futures & Options (F&O), but only through an NRO account.
- Mutual Funds
Segments excluded
- Intraday
- BTST
- Commodity & Currency trading
How Taxation Works for NRIs
NRI investments in India are subject to Tax Deducted at Source (TDS), meaning taxes are automatically deducted before the net proceeds are credited to the investor’s account. The applicable tax depends on the holding period of the investment. If shares are sold within 1 year of purchase, the gains are classified as Short-Term Capital Gains (STCG) and taxed accordingly. If shares are held for more than one year before being sold, the gains fall under Long-Term Capital Gains (LTCG) rules.
Conclusion
Although the initial setup process for NRIs involves additional documentation and regulatory approvals, it is largely a one-time exercise. Once the NRE/NRO account, PIS approval, and trading accounts are activated, NRIs can invest in Indian markets smoothly from anywhere in the world.
As India continues to grow, Indian equities may offer long-term investment opportunities for global Indian investors.
Disclaimer: Investments in securities market are subject to market risks, read all the related documents carefully before investing. This is only for Informational purposes.
