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NRI Trading Account Guide- Indian Stock Market


NRI Trading Account Guide- Indian Stock Market

The NRI are the Indian Citizens that have temporarily immigrated to another country for six months or more than that. These citizens are allowed to invest in Indian Stock Market, Mutual Funds, Bonds and various other instruments by a different set of rules designed by RBI and SEBI.

At times, many customers have this question in their mind that whether the NRI can invest or trade in Indian Stock Market. Let’s discuss about it.

Can a NRI invest or trade in Indian Stock Market?

The answer to this question is Yes. The NRI customers can invest in equity shares, ETF, debt funds, mutual funds and IPO’s in India. The NRIs can trade in Equity Derivatives (F&O) at the exchanges like BSE, NSE and MCX.

The Reserve Bank of India has provided permission to the NRI in order to invest or trade in the Indian Stock Market by the PIS route and the Non-PIS route on the non-repatriation basis. They can also trade in currency derivatives as per the rules issued in February 2017.

Let us get into the detailed information of Who is a NRI and What all trading accounts he can open.

Who is NRI?

A Non-Resident Indian is an individual that holds an Indian Passport and has temporarily immigrated to another country for the tenure of six months or more employment, residence, education or any other purpose. Such migrants can maintain the bank accounts in India, invest in shares and can deposit within the Indian Companies and invest in immovable properties in India. A POI (Person of Indian Origin) was who was born in India or other countries but have an Indian ancestry but is not a Indian Citizen and is the citizen of another country.

A trust or partnership organisation that is developed outside India and owned and controlled by the NRI’s. He may also hold on the repatriation basis, equity shares in an Indian firm.

What is the meaning of PIS (Portfolio Investment Scheme) route?

SEBI has instructed this PIS route in June 2013. It is a foreign investment route that simplifies the registration and investment procedure to bring in all the categories of foreign investors under a single channel called as PIS.

The foreign investors that are investing in under the PIS route are classified into three categories such as Category I, Category II, Category III investors and the KYC procedure varies for all of them.

How to Open an NRI Demat Account?

In order to trade in Indian Stock Market, the NRI investors has to open three different accounts and link them altogether.

The NRI Equity Trading Account includes:
  1. A Demat Account is to hold the shares. The account is opened with a Depository Participant (DP).
  2. A NRI Trading Account is opened with the sharebroker that enables the NRI investors to execute the trade in the stock exchanges.
  3. A custody account, if NRI is planning to trade in the Equity Derivatives (F&O) segment. This account manages the settlements of all the security transactions that are undertaken by the clients. Now, it has to open with the Custodial Participant i.e. IL and FS.
Some of the financial institutions in India that open these accounts are:
  1. The firm that offers the facility of 3-in-1 account – It means all the three accounts can be opened once with the same financial institution. The accounts are more popular because of the seamless transactions among the accounts. It becomes easy to use at the cost of higher AMC and brokerage charges.
  2. Some of the firms offer 2-in-1 account that includes a trading and demat account. Such brokers have partnership with the specific bank for the seamless integration. These brokers are cheaper than the brokers that provides 3-in-1 account.
  3. The firm offering only brokerage services i.e. Discount brokers- It mean that the brokers have earned specialisation in trading only along with the opening of trading account. They serve their customers with the excellent trading platform and has cheap brokerage fees and free software for trading. They have exclusive partnership with the DP service provider and the banks.
NOTE:
  1. It allows investment in stocks on a repatriation basis, an individual needs a PIS permission on their NRE Bank Account.
  2. The customers can invest in F&O with a CP code from the clearing agency. The F&O investment by NRI are allowed only on a Non-repatriation basis.
Opening a NRI Bank Account

Any NRI can contact in any bank in India with its foreign branches and the one that offers NRI Bank Account under the PIS (Portfolio Investment Scheme). This further helps in investing on a repatriation basis or NRO Non-PIS Account in order to invest on the non-repatriation basis.

To invest on the repatriation basis, a NRI needs an approval from the RBI in order to open the account by PIS route. After receiving the approvals from the bank, the customer is provided with a PIS letter. The PIS letter is required to open the trading and demat account. Some of the popular banks offering such services are ICICI bank, Axis Bank, HDFC Bank and Kotak Bank.

Opening Demat and Trading Account

Choose the appropriate broker and contact them to get the demat and trading account opened. If any stock broker does not offer demat account services then they direct the customers to the preferred DP Service provider (i.e. IL&FS). The customers can open their demat account and link it with the trading account. NRI Trading in Derivatives Segment (F&O Trading)

NRI can trade in the Futures and Options segment only on the non-repatriation basis using the NRO Account. No PIS permission is not required in order to invest in F&O. an individual needs an account with a custodian or a broker that offers in house trading and services in order to start investing. The custodian or the broker can help to obtain the CP code for you from the clearing agency that is required to initiate trading in F&O.

How can I trade in F&O’s in the Indian Stock Market as NRI?
  1. Contact a clearing member and submit the application for the Custodial participant (CP) code.
  2. The clearing member shares the custodial participant code with you.
  3. You are required to open a NRI trading account with their choice of broker and provide them the CP code.
  4. Further, the broker can use the CP code for all the trading settlements.

Note:

  1. The custodian can ask for the minimum ₹25 lakhs as a deposit.
  2. In case, the broker provides various house clearing services then it is not required to open an account with the custodian. The broker can easily clear and settle the trades for oneself. It saves the customers from the cost by keeping the deposit of ₹25 lakhs with a custodian.
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