Tips for Mutual Funds Investment in India for NRIs

Indian overseas investors, who are often called NRIs, PIOs, & OCIs, must match the preset eligibility criteria if they are willing to invest in Indian stocks. Also, they need to open demat and trading accounts, as others do. Certainly, the distance can make it more challenging and time-consuming for them.  Additionally, they have to understand protocols and guidelines outlined by FEMA.

Guidelines for NRI Investment in India

Let’s understand the guidelines, especially for emigrant Indians, who often look for the best alternatives for NRI investment.

They often get puzzled if they can invest in Indian stock market and purchase bonds. The answer is yes, they can do on a repatriable or non-repatriable basis. Repatriable investment means transferring capital income via sale proceeds and profits outside India. For this, they must have a non-resident external (NRE) savings account. And, that bank should be affiliated or approved by the Reserve Bank of India.

PIS for Investment

There is another source for investment, which is the Portfolio Investment Scheme (PIS). For this transaction, having an NRE or NRO savings account is a must. This PIS enables them to buy or sell stocks from the listed companies of India. Also, they should be enrolled on recognized stock exchanges. Here, it’s noteworthy that only specific branches of authorized dealer banks can provide PIS transaction facilities for NRIs. If their NRE account is linked to demat and trading accounts, it will be good. With them, they can easily involve in stock trading. But, this should be taken into account that such account holders have limited investment options, which include stocks, bonds, and NCDs.

Accounts Requirement

Now that you know NRIs can enjoy non-repatriable investments, there is a gray side also. There are many restrictions that they have to face when they transfer money outside India. As aforementioned, they need to open an NRO savings account with an RBI-approved bank.

Once opened, the investment must be strictly done in a demat account, which must be linked to the NRO bank account. The positive aspect is that non-residents require no approval from RBI if they have PIS permission. They can directly call or hire brokers for trading or to invest in stocks, IPOs, bonds, and ESOPS. Moreover, mutual funds investment option is also there for them. They can use their NRE or NRO savings accounts and also, complete their KYC verification to get a green signal for legitimate investment in India. 

20% Tax on Earning

Tax is a big issue. Non-residents of India have to pay capital gains tax like resident investors. If they earn dividend, this income is taxed at a rate of 20%. Here also, the tax will be calculated under the DTAA (double taxation avoidance agreement) if applicable. Once the relevant taxes are deducted, the remaining income on investment is directly sent into the NRE or NRO bank account of the investor.

Documentation for Demat/ Trading A/c

To open such account, certain documents should be enclosed as proof. These include the self-attested, notarized, and court magistrate-attested copy of the following docs:

• Account opening form
• Copies of PAN card
• Passport
• OCI/PIO
• Foreign and Indian address proof
• A cancelled cheque from the NRE/NRO savings account,
• And passport size photos.
• Account Charges

A few things should be considered beforehand, which are associated with the cost of opening accounts and trading. NRI investors have to bear various trading account charges, which can be related to account opening fees, brokerage charges, platform access fees, call and trade fees, exchange transaction charges, etc. Besides, taxes such as stamp duty, goods and services tax, and SEBI charges would also be there to incur. If you compare this cost with native investors, it's more or less similar or a little higher.

Brokerage Value

Another thing to worry about is brokerage charges. These charges may differ from brokers to brokers. Although, a few may charge a fixed fee and others can ask for sharing a percentage based on the transaction value. If you think about flat fees, it can be from ₹100 to ₹200 per trade (fixed fee). On the other hand, percentage-based charges can fall between 0.5% and 1.25% of the total transaction value.

Investment Limit

To the maximum, NRIs can invest up to 10% of the company’s paid-up capital. Banks use NRI email and trading accounts as a bridge between the bank account and equity shares, bonds or other assets.

Non-residents should remember that their demat account holds various types of securities. On the flip side, asset management companies do not need such accounts to buy mutual funds. For exact details, they can look for the best provider of NRI investment services here to avoid delays and challenges.