Investing in India

Points to know for NRIs investing in India brought to you by

HSBC InvestDirect (India) Limited
http://www.hsbcinvestdirect.co.in
Definition of a NRIs / PIOs

Who is a ‘Non Resident Indian (NRI)’?

A person who does not reside in India for more than 182 days in any preceding financial year

Non Resident Indians is also someone who fall under the following broad categories:

• Indian citizens who stay abroad for employment or for carrying on a business or vocation or for any other
purpose in circumstances indicating an indefinite period of stay outside India.
• Indian citizens working abroad on assignments with foreign Governments/government agencies or
International/Regional Agencies like the UNO, IMF, World Bank, etc.
• Officials of the Central and State Governments and Public Sector Undertakings deputed abroad on
temporary assignments or posted to their offices (including Indian Diplomatic Missions) abroad.

Who is a ‘Person of Indian Origin’ (PIO)

A citizen of any country (other than a citizen of Bangladesh or Pakistan) is deemed to be of Indian origin, if,

• he, at any time, held an Indian passport, or

• he or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of
India or Citizenship Act, 1955 ,or
• Spouse (not being a citizen of Bangladesh or Pakistan or Sri Lanka) of an Indian citizen or of a person of
Indian origin is also deemed to be PIO.

NRI Investments in India – General Regulatory Framework

Can an NRI make investments in the Indian companies?

NRIs are allowed to invest in India companies under the Portfolio Investment Scheme (buying through the
secondary market) and through the Direct Subscription route (Investments though IPOs/Private Placements).

Portfolio Investment Scheme

What is the Portfolio Investment Scheme?

Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) defined in Schedule 3 of
Foreign Exchange Management Act 2000 under which the ‘Non Resident Indians (NRIs)’ and ‘Person of Indian
Origin (PIOs )’ can purchase and sell shares and convertible debentures of Indian Companies on a recognized
stock exchange in India by routing all such purchase/sale transactions through their account held with a
Designated Bank Branch ( Authorized Dealer - AD)

Steps for an NRI to Investments in Indian stock markets?

• An NRI should open a new NRE /NRO savings bank account with designated bank (AD) branch which is
approved by RBI (Reserve Bank of India) for this purpose.
• He/ She should apply for a general approval for investment in Indian Stock Market through his
designated bank branch (PIS approval).
 • He / She should open a Demat Account with a Depository Participant to hold his shares.
• He / She needs to register with a broker to execute his buy/sell orders on the stock exchange(s).

HSBC InvestDirect Securities (India) Limited** (HISL) offers broking account for the NRIs to trade
in equities and the NRI can trade online at his /her convenience.

What is a ’designated bank branch’?

RBI has authorized a few branches of some banks in India to conduct the business under Portfolio Investment
Scheme on behalf of NRIs/OCBs. These are called Authorized Dealers

Overview: NRE and NRO Bank Accounts

NRIs/PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange
brought in from abroad or out of funds legitimately due to them in India.
Such accounts can be opened with banks specially authorized by the Reserve Bank in this behalf.
There are three types of Non-Resident accounts:

1) Non- Resident (External) Rupee Accounts (NRE Accounts)

NRIs and PIOs are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts can be in
the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in
free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be
credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to
residents for operation of accounts for limited purposes.

The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest lying
to the credit of NRE accounts is exempt from tax in the hands of the NRI. However, TDS on capital gains as per
the prevailing tax provisions is processed by the Authorized Dealers before giving credit to the NRE account

Funds held in NRE accounts may be freely transferred to Foreign Currency Non Resident (FCNR) accounts of the
same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same
account holder.

2) Ordinary Non-Resident Account (NRO Accounts)

These are Rupee dominated non-repatriable accounts and can be in the form of savings, current, recurring or fixed
deposits. These accounts can be opened jointly with residents in India. When an Indian National /PIO resident in
India leaves for taking up employment etc. outside the country, other than Nepal or Bhutan, his bank account in
India gets designated as NRO account.

The deposits can be used to make all legitimate payments in rupees. Interest income from NRO accounts is
taxable. Interest income, net of taxes is repatriable.

3) Foreign Currency Non Resident (Bank) Accounts (FCNR (B) Accounts)>

NRIs/PIOs are permitted to open such accounts in US dollars, Sterling Pounds, Japanese Yen, Euro, Canadian
Dollars and Australian Dollars. The accounts may be opened in the form of term deposit for any of the three
maturity periods viz; (a) one year and above but less then two years (b) two years and above but less then three
years and (c) three years only. Now RBI has allowed banks to accept FCNR (B) deposits upto maximum maturity
period of five years.

Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not
ordinarily resident status under the Indian tax laws.

FCNR (B) accounts can also be utilised for local disbursement including payment for exports from India,
repatriation of funds abroad and for making investments in India, as per foreign investment guidelines

Can money be transferred from NRE account to NRO account or vice versa?

Funds can be freely transferred from NRE account to NRO account. But No funds can be transferred from NRO
account to NRE account.

Can money transferred from NRE account to NRO account be transferred back to NRE account?

Money once credited into NRO account cannot be transferred back to NRE account. Amount once transferred to
NRO account will become non-repatriable.

Can a NRI have multiple NRE and NRO accounts with designated branches of different authorized banks
for the purpose of investing in Indian equity markets under the Portfolio Investment Scheme?

No. All investments in Indian equity markets under the Portfolio Investment Scheme must be routed through only
one dedicated NRE and NRO account opened with any one of the designated branches of authorized banks.
Although a NRI can have multiple NRO and NRE accounts with different banks/branches but Investments under
Portfolio Investment Scheme cannot be made through more than one NRE or NRO accounts maintained with the
designated bank branch.

Investment on Repatriation and Non-Repatriation Basis

Can an NRI have investments under Portfolio Investment Scheme on repatriation as well as non-
repatriation basis?

Yes. Investment can be made on repatriation as well as non-repatriation basis. However, an NRI will have to open
NRE account as well as NRO account with designated bank branch.

Under what circumstances can investments made under Portfolio Investment Scheme are repatriated?

The repatriation of the sale proceeds, net of taxes, are allowed if the original purchase was made on repatriation
basis and such investments were made out of funds from NRE/FCNR account or by means of remittance from
abroad.

Do a NRI need to have separate broking account for investment with repatriation and non-repatriation
basis?

Yes, NRI would need to have two separate broking accounts for investments with repatriation and non-repatriation
basis. At the same time, NRIs also need to have two separate bank accounts respectively i.e. NRE and NRO
account which would be linked with their broking account. Also separate DP account(s) with repatriation and non-
repatriation basis shall be accordingly linked with respective broking account.

Can a NRI have a common Demat account for crediting securities acquired on repatriation as well non-
repatriation basis?

No. Demat account can be opened for both, on repatriation and non-repatriation basis. Thus any purchases made
on non-repatriation basis has to be credited in the demat account opened on non-repatriation basis and vice-versa.
Can a NRI have multiple Bank accounts linked to my broking account?

No. NRIs can link only one bank account (NRE/NRO) with each of their broking account.

Approval for Investments under Portfolio Investment Scheme

What is the permission which an NRI has to obtain to invest under the Portfolio Investment Scheme?

NRIs are allowed to invest in Indian equity markets under the Portfolio Investment Scheme. Under this scheme
NRIs/OCBs are permitted to invest in shares/debentures of Indian companies through Stock Exchanges in India.
These investments require prior approval of RBI. Designated branch of authorized banks have been now
empowered to issue such permissions to NRIs.

How do an NRI get the necessary approvals for Portfolio Investment scheme?

The necessary application is to be submitted to designated branch of authorized bank (AD) in one of the
prescribed forms, i.e. NRI/RPI.

Do NRIs need to have separate approvals for investment through NRE and NRO account?

Two separate approvals will be granted for investment through NRE and NRO account. Application for investment
on repatriation and non-repatriation basis is made in form no. RPI and NRI respectively.

Role of a bank (AD) and broker for NRIs investing in equities

Role of the Bank

• Issues authorization letter on behalf of RBI for investment under PIS

• Facilitates transfer of funds from PIS account to the broker’s account in case of a purchase transaction
• Facilitates receipt of funds in to customer’s account from broker’s account in case of a sale transaction
• Computes Capital gains and effects payment of applicable taxes to Income-Tax Authorities
• Handles mandatory reporting of PIS transactions to Reserve Bank of India

Role of a Broker

• Provide facility for trading

• Ensure that the credit for sale is not directly credited into the client account. The cheque has to be
forwarded to the Authorized Dealer. The bank will credit the proceeds after applying the necessary
capital gain tax.

Maximum Permissible Investments for NRI’s

Is there any limit for purchase of shares/convertible debentures by NRIs under the Portfolio Investment
Scheme?

Yes. An NRI can purchase up to a maximum of 5% of the aggregate paid up capital of the company (equity as well
as preference capital) or the aggregate paid up value of each series of convertible debentures as the case may be.
For the purpose of this ceiling, investment under the Portfolio Investment Scheme on repatriation as well as non-
repatriation basis will be clubbed together.
There is an overall ceiling of 10% of paid-up equity share capital of the company/paid-up value of each series of
convertible debentures for purchase by all NRIs/OCBs put together. The overall ceiling can be raised to 30% if the
company concerned passes a special resolution to that effect in its general body meeting.

Shares/convertible debentures acquired through IPO/Private Placement are excluded for the purpose of above
limits.
What happens if an NRI purchases a stock in excess of the prescribed limit?

The NRI will have to immediately off load such portion of the holding, which is in excess of the prescribed limit.

Day Trading/ Margin Trading

Is day trading allowed for NRIs in Indian markets?

NRIs are not allowed day trading or speculative trading. It is mandatory that all trades by NRI are DVP trades and
for sale, the securities need to come from DP account of NRI only.

Can an NRI trade on margin?

No. NRIs are allowed to do only delivery-based business.

Investment through Direct Subscription route (IPOs)

What is meant by investment through direct subscription route?

As per the regulations NRIs are allowed to invest up to a certain percentage of the total paid up capital of the
company by directly subscribing to the equity/convertible debentures of the company either though a public
offering made by the company or through private placements on one to one basis. Regulations provide for different
ceilings on such investments based on the industry to which the company belongs and also the nature of
investments (repatriation / non-repatriation basis).

Do investments made though subscription to Initial Public Offerings (IPOs) or Private placements also
come under the preview of Portfolio Investment Scheme?

No. Investments made by NRIs though subscription to Initial Public Offerings (IPOs) or Private placements are not
covered by Portfolio Investment Scheme. Such investments are covered by RBI’s regulations with regard to
Foreign Direct Investments.

Do NRIs need any permission of RBI to subscribe to Initial Public Offerings (IPOs) or Private placements of
equity shares/convertible debentures of existing or new companies?

No. NRIs do not require any permission to invest though Initial Public Offerings (IPOs) or Private placements. In
such cases, the issuing company should comply with all necessary regulations for issuing securities to a person
resident outside India.

Do NRIs need any approval from Reserve Bank of India for selling of the securities acquired through
IPOs/Private Placement?

No. NRIs can sell such shares/debentures on the Exchange without any approval. However, while seeking the
credit of sale proceeds to NRE/NRO account, the bank should be provided with the details regarding the source of
funds.
NRIs investing in derivatives

What are the regulatory requirements for a NRI to invest in derivatives?

NRIs are permitted in invest in exchange traded derivative contracts subject to the margin and other requirements
which are in place for other investors. NSE has laid down the procedure for providing specific UCC number to
NRIs for undertaking trades in Derivative segment. In addition, a NRI is subject to the following position limits:

Single stock Interest rate

Index options Index Futures Stock Options
Futures futures

Disclosure Disclosure 1% of free float 1% of free float Rs.100 Cr or 15%

requirement for any requirement for any market capitalization market capitalization of total open
person or persons person or persons or 5% of open or 5% of open interest in the
acting in concert acting in concert interest on a interest on a market in exchange
holding 15% or more holding 15% or more particular underlying particular underlying traded interest rate
of the open interest of the open interest whichever is higher whichever is higher derivative
of all derivative of all derivative contracts,
whichever is higher.

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Disclaimer:
The contents of this document are subject to changes / amendments made by the regulatory authorities in India and your home
country. This information is provided as general guidance and is neither a solicitation for business, investment advice nor tax
advice. NRI and PIO Customers and prospects should consider seeking professional advice before opening or operating a NRI
Trading Account.