Basics of investing in stock markets for NRIs
As an NRI it is an ideal opportunity for you to invest in India to generate high returns on your investment. Continue reading to know more about how you can invest in India as an NRI.
The Indian economy is the fastest growing economy in the world as of 2017. Hence, as an NRI it is an ideal opportunity for you to invest in the country to not just generate high returns on your investment but also keep in touch with you roots. However, you must remember that if you are an person of Indian origin (PIO) or an Indian citizen residing outside India (NRI), you can invest only in specific types of securities as per the latest Foreign Exchange Management Act (FEMA) guidelines. Here are a few features of investing in stocks as an NRI
Types of Securities
According to FEMA guidelines, an NRI investor can buy and sell only convertible preference shares, convertible debentures and warrants issued by an Indian company. Likewise, he can also invest in units of an investment vehicle. But as an investor, you can buy and sell these securities only under the Portfolio Investment Scheme, and through a recognised stock exchange.
FEMA has clearly mentioned that an NRI is not allowed to buy more than 5% of the paid-up value of shares issued by a single company. Hence, as an NRI you can buy only upto 5% of the paid-up value of the preference shares or convertible debentures issued by a particular company. Also, no company is allowed to sell more than 10% of its total paid up capital to NRI investors.
Mode of Payment
While buying securities issued by an Indian company, you can pay for securities only in the local currency – Indian National Rupee (INR). Hence, you are required to open a rupee-account with an authorized bank to invest in the Indian stock market. Normally, as an NRI investor, you will have the option to choose from three distinct types of rupee accounts – foreign currency non-resident account (FCNR), non-resident external rupee (NRE) account, and non-resident ordinary rupee (NRO) account.
Portfolio Investment Scheme
The RBI allows NRI investors to buy or sell specific securities through the portfolio investment scheme (PIS). But as a non-resident investor, you are required to make an application to a bank that is authorized by the RBI to deal in portfolio investments. Also, you have to route all security related transactions exclusively through a designated branch of the bank. The designated branch will perform several checks to ensure that the transactions adhere to the latest FEMA guidelines.
Your tax liability as an NRI investor on any profits you make from investments in Indian securities is identical to that of resident investors. Also, specific securities are subject to tax deducted at source. However, you can take advantage of the double taxation avoidance agreement (DTAA) according to your country of residence in order to avoid paying taxes twice. Hence, as an NRI investor, you must explore ways to reduce your tax liabilities while investing in securities issued by Indian companies.
The Reserve Bank of India (RBI) revises FEMA guidelines periodically. Hence, as an NRI, it is important that you refer to the latest FEMA guidelines before investing in the Indian stock exchange. Also, you need to understand the exact process of buying and selling securities issued by an Indian company to avoid any legal hurdles in future. Remember to carry out due diligence and comprehensive market research to know about the various factors and risks affecting Indian markets before making any investments.
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