India has become a lucrative investment opportunity for many, especially Non-Resident Indians (NRI) residing outside of India. When a person of Indian origin moves abroad for employment purposes, they are considered NRIs according to the Foreign Exchange Management Act. However, according to the regulations for NRIs trading or investing in the stock market in India, one must have a Demat account. Read on to know more about the basics of an NRO Demat account for NRIs.
Why do NRIs need to open a Demat account?
As an NRI, you can invest in shares of Indian companies as well as domestic mutual funds via the stock exchanges with the portfolio investment scheme. In order to do this, one needs to apply to a designated branch of a dealer who is authorized, and all transactions and all transactions for shares are passed through a registered broker on a stock exchange that is recognized. All of your stocks will be held within your NRO Demat account. You should note that Speculative transactions are prohibited and that you can also open a new non-resident external (NRE) account wherein you could remit funds from abroad.
Due to a lack of knowledge, many neglect to inform their banks about their NRI status while moving abroad, leading to concerns about PAN numbers and tax treatment. The banks require this information so that your bank’s accounts can be redesignated as non-resident ordinary (NRO) accounts.
Benefits of NRO Demat account for NRI :
There are certain advantages to opening a Demat account for NRI–
- As an NRI, you can invest in the Indian stock market quickly and easily from anywhere in the world. The bulk of the physical documentation process for transactions reduces greatly.
- The transactions are fast and efficient and are immediately reflected in the Demat account.
- There is a minimal risk of loss of physical documentation, forgery, delayed delivery and other such issues related to transactions with the NRI Demat account.
- The minimum capacity for the NRI Demat account is as low as one share.
- You can diversify your portfolio by investing in ETFs, shares, mutual funds, convertible debentures, etc.
How do I open an NRO Demat account?
The procedure can be done online or offline, and it requires you to obtain an account opening form, fill it, attach the required attested documents and submit the form.
Before opening a Demat and trading account you must have your PAN card, NRO account and a Portfolio Investment Scheme (PIS) letter of approval from the RBI ready. The documents also include a passport-sized photo of the account holder with a signature across it, copies of PAN card, VISA and passport, overseas address proof, and a cancelled cheque of the NRO/NRE bank accounts. All the documents have to be signed by the banker, notary, or Indian Embassy of the country where the NRI now resides.
How to find a good Demat account for NRI?
When you open an NRO Demat account, it is linked to an NRO bank account. Also known as the Non-repatriable Demat account, this account is essential for managing funds that are earned in India. This is because one cannot transfer all money overseas; the principal amount of investment is repatriable after you pay taxes. According to RBI rules, overseas transfer of up to 1 million USD is permitted in one financial year. After TDS is deducted, the interest that this sum earns is repatriable.
So in all, adhering to RBI rules and regulations, NRIs are supposed to open two separate Demat accounts for non-repatriable and repatriable investments.
Several banks and brokerage firms offer Demat account facilities. With the diversity of options available, it is easy for investors to be confused when making a choice.
Make sure to keep a few things in mind.
- With regards to the ease of opening an account, the recommended approach is to go through an intermediary depository that is registered with SEBI.
- There are certain maintenance charges charged by the brokers and expenses like opening fees that should be taken into account. Choose the option that will cost you the least amount.
- The interface between the bank account and the Demat account should ideally be seamless. The online trading procedure via websites or apps should also be effortless, so keep that in mind while making a selection.
- The depository participant is expected to provide the analytics related to valuation, diversification, profitability, and direct call of action to the traders.
- The broker or depository you finalize must also have certain plus points, offers, or extra services that set them apart from the competition.
Based on these factors, you can determine the best Demat account for NRI.
Based on your unique needs and preferences you can do your research and open an NRO account. You may also choose to go with an NRE account, which offers advantages such as repatriation benefits for both interest and principal as well as tax exemption on interest earned. Once you have accounts ready, you can invest in nearly all sectors excluding companies in chit fund, print media, plantation, real estate (besides real estate development), transferable development rights and agriculture. For shares held for less than a year, capital gains are liable to tax at a rate of 15.45%. For shares held for over a year, capital gains will be exempt during sale. Generally, the broker will withhold income tax while making remittance to the bank accounts.