NRI Trading Account

What is the process of trading stocks in India for NRIs?

An NRI Trading Account refers to the account that is used by the NRIs to buy and sell securities on the Stock Exchanges in India. This type of account is specially designed for the Non-Resident Indians (NRIs) and it can be opened with any Stock Broker who offers NRI services.

All NRI Trading Accounts have to be linked to an NRI Bank Account. The rules and restrictions that are applicable to NRI trading will depend on the bank account that has been used. For example, the below-mentioned aspects of trading are impacted by the type of the account:

Repatriation of funds to outside of India
Brokerage, transaction fees and other charges
Segments that can be traded (Stocks, Mutual Funds, Stock Derivatives etc.)
Ownership limits in stocks
etc.

Trading mechanism for NRIs

To buy and sell securities in the Indian stock market, an NRI would need to have the following accounts:

     Trading Account (To place orders on the Stock Exchange)
     Bank Account (To hold cash, receive Dividends etc.)
     Demat Account (To keep the purchased securities)

Once the accounts have been opened and linked to each other, the NRI can add funds for trading. The Stock Broker will update the available Margin in the NRI Trading Account and the total value of trades that can be done in a day will of course depend on the funds held in the account.

The NRI will then be able to submit orders on the Stock Exchange, through the Trading Account. At the end of the day, the Stock Broker will start the Settlement Process. Depending on the value of trades, the funds will be debited from or credited to the account. Similarly, the shares will be delivered to / withdrawn from the Demat Account, for settlement purpose.

Portfolio Investment Scheme (PIS)

The Portfolio Investment Scheme (PIS) was introduced by the Reserve Bank of India (RBI), to help the NRIs to trade the Equity shares of the companies which are listed on Indian Stock Exchanges. Under this scheme, the NRI would need to open a PIS account with a Bank. A PIS approval is needed from RBI and it can be requested through the Bank with which the account is being opened.

This special bank account can then be linked to a NRI Trading Account. At the end of the day, the Stock Broker submits the trade details to the PIS bank and the funds in this bank account are used to settle the trades executed by the NRI.

On behalf of the NRI, the PIS bank will deduct the applicable taxes / TDS (Tax Deducted at Source) and pay it to the relevant authorities. The bank is also responsible for reporting of the trades to RBI (for some accounts). The PIS bank charges a transaction fees for each trade. It also collects an Account Maintenance Charge (AMC) for the services that it provides.

Restriction on ownership

Through the PIS route, an NRI can purchase a maximum of only 5 % of the shares or debentures of any company. Also, the total investments from all the NRI investors in any company cannot exceed 10%. This NRI holding limit of 10% can be increased to 24% through a Special Resolution, which needs to be passed by the company.

Types of NRI Trading Accounts

When an NRI decides to open a Trading Account, the first step is to decide whether he/she would like to opt for the Portfolio Investment Scheme (PIS). If the NRI does not wish to opt for PIS, then a non-PIS account can be opened with the bank. The trading in non-PIS mode works in a very similar way as the trading for Resident Individuals.

Types of NRI Trading Accounts

Besides the choice of PIS, an NRI can also select the type of Savings Account which has to be opened with a bank. Based on the kind of accounts, the different types of Trading Account for NRIs have been mentioned below.

1. NRE PIS account

A PIS NRE account refers to a Non-Resident External account (NRE account) for which the PIS permission has been received. For any NRI, it is possible to have only 1 active NRE PIS account at any time. The PIS is mostly used for the repatriation benefits that are offered.

So, the amount held in an NRE Trading account is fully repatriable and the funds can be freely transferred to outside of India. This account can be mainly used for purchasing Equity Shares on a delivery basis.

2. NRO PIS account

For a PIS NRO account, the NRI would need to request PIS approval for a Non-Resident Ordinary account (NRO account). Compared to an NRE account, the funds held in an NRO account are not freely repatriable.

This means that there are some restrictions and limits on the funds that can be transferred from this account to outside of India. The NRO Trading Account can be used to trade in Equity shares (compulsory delivery), Equity Futures and Options etc.

3. NRE non-PIS account

This type of account also refers to an NRE account, but no PIS permissions are needed in this case. The account offers repatriation benefits and the amount held in the account can be fully and freely transferred to outside of India.

The account can be used to trade in the following securities: Equity (with compulsory delivery), Mutual Funds, Exchange Traded Funds (ETFs). However, NRIs from USA and Canada cannot invest in Mutual Funds.

4. NRO non-PIS account

To set up a non-PIS NRO account, the NRI would simply need to map a NRO account to the Trading Account. Compared to an NRE account, the funds held in an NRO account are not freely repatriable and there are some limits and restrictions on the funds that can be transferred to outside of India.

This account can be used to trade in the following segments: Equity (with compulsory delivery), Equity Futures and Options (F&O), Mutual Funds, Exchange Traded Funds (ETFs) etc. However, NRIs from USA and Canada cannot invest in Mutual Funds.

Opening an NRI Trading Account

An NRI Stock Trading Account can be created by any Non-Resident Indian (NRI), Person of Indian Origin (PIO) or an Overseas Citizen of India (OCI). The documents and the process for opening the account will depend on the type of bank account that is being opened (NRE or NRO).

To set up the Trading Account, the NRI would need to first open a bank account with a Commercial Bank which allows opening of NRE or NRO accounts. By default, all the new NRI accounts will be opened as non-PIS accounts. If the individual decides to opt for PIS in NRI Trading Account, then a PIS request needs to be submitted to the RBI, through the Commercial Bank.

After that, the NRI would have to find a Stock Broker which offers NRI services. Some Brokers provide an option to open an integrated 3-in-1 account, which includes: Trading Account + Demat Account + Bank Account.

Disclaimer

  • This page is for education purpose only
  • Some information could be outdated / inaccurate
  • Investors should always consult with certified advisors and experts before taking final decision
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