Non-resident Indians (NRIs) need to open a demat or dematerialised Account for safe electronic storage of their securities and shares for stock market investment in India. Smooth transactions combined with regulatory compliance become achievable with a demat account for NRI. With it, NRI investors can diversify their investments and grow their wealth in India.
This blog details how NRIs need a demat account for their Indian stock market investments, the types available, the step-by-step process to open one, required documents, associated charges and key regulations.
Understanding Demat Accounts: What NRIs Need to Know
A Dematerialised or Demat Account for NRI is a tool required by anyone who wants to invest in the Indian stock market. With this account, NRIs can hold investments electronically in stocks, bonds, government securities, exchange-traded funds, and mutual funds in India. Investors no longer require physical certificates when they hold shares and securities in a demat account.
Why Should NRIs Consider Opening a Demat Account?
NRIs engaging in the Indian stock market need to have a demat account for their transactions. The reasons why NRIs should consider opening a demat account include:
- Transparency: The financial portfolios of NRIs are accessible in real-time. Investors can check their portfolios, track the performance of their investments, and make informed decisions.
- Efficiency: The process of buying and selling shares is made more effective. Errors in online trading are less likely to occur, and transactions proceed faster.
- Security: The usage of physical share certificates, which are vulnerable to loss, destruction, and theft, has stopped. By being held electronically using a demat account, securities are protected.
Different Types of Demat Accounts Available for NRIs
NRIs can open two types of demat accounts based on the repatriation status of funds:
Non-Resident External (NRE) Demat Account
An NRE account, also called a repatriable account, enables the transfer of invested or earned funds to foreign territories. An NRI can invest in the Indian share market visa Portfolio Investment Scheme (PIS) when using this account type. The main benefit of this account is that it is completely repatriable, meaning that both profit and investment may be sent to the NRI’s foreign bank account.
Non-Resident Ordinary (NRO) Demat Account
An NRI can easily invest and trade in futures, options, mutual funds, bonds, etc., using an NRO account which is also called a non-repatriable account. The account functions to administer income earned in India, such as dividends and rental income. However, the new investments are non-repatriable, while existing investments can be repatriated up to a limit of $1 million each fiscal year set by the RBI.
Step-by-Step Process on How to Open Demat Account for NRI
Opening a Demat account for NRI is generally straightforward. Here are the general steps to open a Demat account for NRI:
Step 1: Select a Depository participant (DP)
NRIs need to select a DP that operates under the National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL). The Demat account services designed for NRI investors are accessible through different financial institutions called depository participants.
Step 2: Choose an NRI Bank Account
Before establishing a demat account, NRIs need to have an NRE or NRO savings account at any Indian bank. These bank accounts linked to your NRI demat accounts allow you to receive and send money for securities.
Step 3: Apply for PIS Permission
To operate an NRE-linked demat account, NRIs must obtain permission for the Portfolio Investment Scheme (PIS) from the RBI through authorised banking institutions. This permission is mandatory for all NRIs wishing to invest in Indian stocks.
Step 4: Fill Out the Demat Account Forms
Applicants need to fill out the demat account application with their chosen DPs. The form requires completion of Know Your Customer (KYC) requirements as NRE and NRO account selections need to be made.
Step 5: Submit Required Documents
To open a demat account, NRIs need to submit a few documents. Such documents include address proof, identity proofs, banking documents, etc.
Step 6: Complete the Verification Process
The DP authenticates the demat account leading to bank-performed due diligence. This helps to complete the verification process and approve the demat account.
Step 7: Receive Account Credentials and Start Investing
Account details, along with verification status, come from the DP to allow NRIs to start trading in the Indian stock market.
Essential Documents Needed for Opening an NRI Demat Account
There are certain documents needed to fill out an NRI demat account and complete the KYC. Here are the documents which are required;
- Proof of NRI Status: An NRI needs to provide a residential certificate or overseas employment certificate (work permit) as proof of NRI status.
- Passport and Visa Documents: These documents are the main ID verification documents for opening an NRI demat account.
- Passport-sized Photographs: Banks require NRIs to provide passport-sized photographs for official purposes when opening an account.
- PAN Card: The submission of a PAN card is required for taxation and transaction purposes in India.
- Address Proof: NRI demat accounts require the submission of an election card, driving license, or passport as address proof.
Understanding the Costs and Charges for NRI Demat Accounts
Understanding demat account maintenance costs is essential for NRIs. There are certain types of costs and charges which they must know before opening such an account:
- Account Opening Fees: A few brokers require a one-time fee when customers open a new demat account.
- Annual Maintenance Charges: Ranges between ₹100 to ₹2500 annually.
- Brokerage Fees: Fees paid during investment transactions.
- PIS Reporting Charges: Typically vary between ₹0 to ₹500 per transaction
- Repatriation Charges: Applicability of additional forex and bank charges if transferring funds abroad.
Key Regulations and Rules for NRIs to Invest in the Indian Stock Market
NRIs must comply with various SEBI and RBI guidelines while investing. Here are the key regulations and rules for NRIs to invest in the Indian stock market:
- PIS Regulation: Investments in stocks require PIS permission for NRE accounts.
- Investment Limits: NRIs cannot hold more than 10% of a company’s paid-up capital.
- Tax Implications: NRIs need to pay Tax Deducted at Source (TDS) on capital gains from Indian investments.
Final Words
Opening a demat account is an important step for an NRI to invest in India’s growing financial markets. With the right DP and proper documentation, NRIs can seamlessly trade in stocks, mutual funds, and bonds while ensuring that they are not violating any of the SEBI and RBI regulations.
The type of account (NRE or NRO) should be chosen based on the repatriation needs, and the charges associated with the account should be made aware. So, whether for wealth creation or portfolio diversification, well-managed NRI demat accounts open many lucrative avenues for investing in India.
