Can NRI open a trading account?

The essential goal of earning money is eventually to let your money make more money! While there are numerous ways of multiplying one’s wealth, the traditional method that everyone turns to is the Stock Market! The equal-risk equal-gain opportunity stock trading markets offer, reels in investors from all corners.

Lately, stock trading is a popular investment avenue globally. As a consequence of the global pandemic, people are taking a serious look at secondary sources of income. Amongst them, is a budding generation that seemingly understands the power of compounding. The stock market is a long-term game. Make a bite-sized investment, let it simmer for a few years, and if done right, your money is growing sustainably with more-than-reasonable returns.

The Indian stock exchange market has been one of the best-performing markets in the last few years, climbing the ladder from being the 9th largest stock exchange in the world to the 8th largest in only a matter of two years. The national stock exchange stood at an index of 6,100 points at the beginning of the decade which has now climbed up to nearly 16,000 points in just 10 years. A recent report further stated that the number of active investors in the market has increased by a tremendous 14.2 million people in the financial year of 2021 alone.

The stock exchange in India is proving to be fruitful to most of its investors, a huge chunk of which reside in the country itself, but it is also fostering the growth of investors outside the country.

Non-resident Indians

In many ways, Non-resident Indians (NRIs) have similar rights to resident Indians. However, since they are located abroad, they are required to go through a regulated framework that entails greater compliance and complexity. If you are an NRI and you wish to trade in the Indian stock market, you need to have a Demat account that allows you to trade in bonds, stocks, IPOs, mutual funds, and more.

As per the guidelines of the Reserve Bank of India (RBI), an NRI who wishes to invest in shares in India through a stock exchange needs to approach the designated branch of any authorized bank. Such a bank must be authorized by the RBI to administer the Portfolio Investment Scheme (PIS). Consequently, an NRI can open a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) account under the scheme for routing Investments.

NRIs can purchase and sell shares and convertible debentures of Indian companies on Stock Exchanges under the PIS. All sale/purchase transactions are to be routed through the designated branch. However, as per the latest guidelines, the PIS scheme is not required for NRO (Non-Resident Ordinary). These will be treated as investments by residents.

Types of NRI Account

To trade in the stock market, NRIs require a total of 3 accounts: an NRI Savings account, an NRI Demat account, and an NRI trading account. Most banks now provide a 3-in-1 or a 2-in-one account scheme in which they club the three accounts into one for an easier process.

There are two types of NRI savings accounts:

1. Repatriated NRE (Non-Residential External) account in which all the funds can be transferred and withdrawn completely without paying any taxes.
2. Non-Repatriable NRO (Non-Residential Offshore) accounts are liable for taxation in India.

The NRI trading accounts are used to purchase and sell the stocks and shares which are then stored in the NRI Demat account in a virtual form. Most banks now provide a 3-in-1 or a 2-in-1 account scheme in which they club the three accounts into one for easier access.

How to Open an NRI Account

Before opening an NRI trading account, all NRIs are required to obtain the Portfolio investment scheme (PIS) letter from the RBI before they apply for opening the NRI trading account.

To create an NRI trading account one must follow the listed steps:

1. First, download and fill out the NRI trading account opening form.
2. The next step is to attach all the following documents:
   • Duly filled account opening form
   • The PIS Letter from RBI
   • Cross-signed passport-sized photographs of the applicant
   • Scanned copy of PAN Card, overseas address proof of the applicant
   • A copy of the applicant’s visa and passport
   • Copy of Foreign Exchange Management Act (FEMA) declaration.
   • Foreign Account Tax Compliance Act (FATCA) form
   • A canceled cheque of the NRO/NRE bank accounts must be linked to the Demat account

All these documents shall be self-attested and notarized by the Indian embassy or any other competent authority.

Final word

In recent times, the Indian stock exchange is witnessing an unprecedented influx of people investing in its trade with a considerable proportion of it being NRIs. Through the provision of NRI trading accounts, authorities allow NRIs to invest and operate in Indian Stock Markets with relative ease. NRIs can also open trading account through the IIFL website or demat account app and begin their trading journey.