Use of technology in the stock market has undoubtedly increased its accessibility over the years. And this has particularly eased up access for the class of investors located outside India, including non-resident Indians (NRIs).
Though NRIs do not have to seek approvals, unlike foreign institutional investors who have to take approval from the capital markets regulator, the Securities and Exchange Board of India, and the Reserve Bank of India, NRIs need to comply with certain guidelines.
NRIs are required to fulfil the know your customer requirements. Although it is not very different from what a normal Indian resident has to go through, complications can still arise in some cases. For example, the rules require in-person verification, for which the person would need to visit India. Says B. Gopkumar, executive vice-president and head (broking), Kotak Securities Ltd: “There could be language problems as papers from the NRI’s current state of residence could be in a different language.”
Under the portfolio investment scheme, NRIs are also expected to open an account in a designated bank and route all investments through that. Apart from small technical issues, by and large there is not much difference in opening up an account with the broker. Says Ashish Shanker, head (investment advisory), Motilal Oswal Wealth Management Pvt. Ltd: “NRIs should be careful while choosing the investment adviser (broker) as unlike resident investors, they can open only one account.”
One big difference between a resident Indian and an NRI investing in the Indian stock market is that the latter is not allowed to speculate. Put differently, all trade has to be on a delivery basis and they cannot do day trading.
NRIs can bring in any amount they wish, subject to certain restrictions. For example, an NRI cannot buy more than 5% of the paid capital of a company. Also, total NRI investment in a company cannot cross over 10%. However, the company listed on the stock exchange can choose to increase the limit for NRIs to 24%, with the consent of its existing shareholders in the general body meeting.
One of the big difficulties for NRI could be tracking Indian companies from different geographies and trade from a different time zone. To overcome such issues, an NRI can give a power of attorney to a resident Indian, who can manage the account on his behalf. However, that person will not be allowed to remit funds outside India.
The tax liability for a normal resident and an NRI is the same, though there is a difference in terms of filing taxes. Unlike normal resident investors, tax is deducted at source in case of short-term capital gains for NRI investors. In case, the NRI investor runs a short-term loss at the end of the year, he will have to claim a refund while filing the returns.
It is advisable that NRIs buy good stocks for the long term in relatively higher growth markets like India. Says Feroze Azeez, director of investment products (private wealth management), Anand Rathi Financial Services Ltd: “NRIs should have a long-term objective and invest in large-cap stocks available at reasonable valuation.” Also, NRIs may take advantage of investing in India not only for diversification in terms of location, but also in terms of sectors and the kind of companies.