How can Non Resident Indians & People of India origin make investments in the Indian Stock Markets?
There are a variety of investors in stock markets throughout the globe, but all of them call be divided into two basic groups. These groups are known as the Individual investors and the Institutional investors. An Individual investor is an investor who is investing with their own money. An Institutional investor is an investor such as a big company who invests others money, such as a client or a share-holder. Indian markets are open to NRIs living abroad for buying & selling shares. Though shorting is not allowed in the Indian share market but they can buy and sell stocks.
Now, there are two basic types of investing. These are called foreign and domestic. Only an Institutional investor can be separated into these two groups. These groups are not for individual investors. The groups for Individual investors are Resident or Non-Resident.
There are also 4 different market participant types for stock markets over the globe. Some countries have free markets with very little rules, but most countries have some rules.
Here is some information on the four types in India:
Resident Indian: You can invest or trade in India without very many rules or restrictions. You have full access to India stocks. You would still have to abide by SEBI and NSE – National Stock Exchange / BSE’s – Bombay Stock Exchange rules and regulations though.
Domestic Institutions: You can also freely invest in India Stocks. Domestic Institutions is also including the mutual funds and financial institutions.
Nonresident Indians: You have very special provisions, but can invest or trade freely in the India stocks and stock exchanges.These can be categorized from PIO – person of Indian origin and OCI – Overseas citizen of India.
Foreign Individual Investors (also Nonresident): If you are a citizen of any other country besides India, Nepal, Bhutan, and Pakistan, then you cannot invest in India Stocks. Although you cannot invest directly, there are indirect ways of investing in India. The most popular two ways are American Depository Receits and Mutual funds by foreign markets with Indian Companies.
Foreign Institutional Investors: You can invest or trade freely in almost any Indian stock. Rules and regulations are held by Banks of India and other companies as well.
Opportunities for Nonresident Indians investing in India
There are two phrases that are used often when talking about this. These two phrases are Repatriation Basis and Non-repatriation basis. Investing on a Repatriation Basis means that your proceeds can be accessed in the country where you are living. If you are living in the USA and investing in India, then you can take the proceeds (Rupees) and convert it into U.S. dollars. You can do all of this without any problems. Investing on a Non-repatriation basis, you are not able to convert your proceeds (Rupees) into a foreign currency; however, most cases are on a repatriation basis.
Steps for investing in Indian stocks for NRI, PIO & OCI…
1. You need to get a PAN card. You can get one from the Income Tax Department of India. It is a requirement for everyone to have a PAN to invest or trade Indian stocks, even NRIs. You can download the application for a PAN card at pancardnri.com. It’s free!
2. Next, you need to open at least two different bank accounts that have been approved by the Reserve Bank of India and marked “DESIGNATED”. A few good banks would be ICICI bank, Citibank, and SBI. Whatever bank you decide to choose, make sure they have a branch in you local town and state that you are living in. Also, and most importantly, make curtain that the bank you choose is affordable.
3. Now, you need to open a Demat Account. The demat account will maintain all of your stock balances and transactions. In order to open one, you will have to do it though a DP. If you check with your bank, the chances are, are a DP too. When you choose a DP, make sure that they are very informed about NRIs and demat accounts and that they are affordable.
4. Lastly, you will need to open an account with a stock broker. You will need a stock broker to take care of your buy & sell orders. Open an account with a broker who is a member of a stock exchange in India. The two recommended stock exchanges are NSE and BSE. When you are choosing a broker, make sure that they are registered with SEBI. Also, make sure that they are on good terms with your bank in which you opened your accounts. And last, check to see that they are dedicated and again affordable.
Some good online brokers that assist NRIs to invest in Indian mutual funds & allow them trade online in Indian sharesare: