The Indian equity market is viewed as a window to prosperity by resident Indians and NRIs. Despite facing a strenuous economic disaster, the Indian stock market is enjoying the sheer position. The market has been on a roll for the past 10 years, with an estimated growth of 19% per annum witnessed on the Sensex.
The Bombay Stock Exchange (BSE) stands tall, promoting its strong market reputation and benefiting NRIs and resident Indians. One cannot demean the strength and scope of the Indian equity market, when it comes to creating wealth. As a Non Resident Indian (NRI) your first step toward investing in stocks should start from opening the NRI Demat account. What is it?
The NRI Demat account is important for NRIs looking forward to investing in the shares, bonds, and Initial Public Offers (IPOs). The Demat account is maintained to hold shares or securities in electronic form.
A Guide to understand the NRI Demat Account
Table of Contents:
1. How to open Demat account for NRI?
2. Termination of the existing Demat Account
3. Open a PINS Account for buying shares
4. Documents required for opening a PINS Account
5. Some useful facts about NRI Demat Account
An NRI planning to invest in the Indian stock market or an Indian Resident who is about to become an NRI needs to know and follow the functioning of the Demat for NRI account:
1. How to open a Demat account for NRI?
Hold on! If you are planning to invest in the Indian share market with the same Demat account you had when you were a resident of the country, drop the idea.
Forget about fresh investments, even if you want to continue to hold the shares which you were already holding, you need an NRO account. Before getting to know how to open a Demat account as an NRI, you mush close your existing (Indian Resident) Demat account.The RBI regulations will not let you to continue your existing Demat account which you have created when you had the status of Indian Resident. FEMA has set-up a unique framework for NRIs to invest in Indian equity. The step-by-step procedure is explained below in detail.
2. Termination of the existing Demat Account
An NRI will have to close his/her existing Demat account – the one opened before acquiring NRI status. Your demat account, which holds the shares that you purchased when you were a resident, would need to be transferred to an NRO (Non-Resident Ordinary) Demat account.
You can continue to hold those shares in the NRO Demat account or sell them. If you sell the shares, the proceeds will be credited to your NRO savings account. Also, there are some restrictions to repatriate like – source of funds certificate from your Chartered Accountant and repatriation limit of upto 1 million USD per year
The Reserve Bank of India imposes a restriction on NRIs when it comes to investing in the securities market. As an NRI, you cannot invest beyond 5% in the paid-up capital of an Indian company. The purpose of restrictions made by RBI to open an NRO demat account is to monitor the percent of the investment This is the reason why an NRI has to close the existing and open a new demat account after acquiring NRI status.
i) A little exemption….
An NRI can buy stock raised through Initial Public Offers (IPOs) on a repatriable basis, using funds in their Non-Resident External (NRE) account.
3. Open a PIS Account for buying shares
To buy shares from the Indian market an NRI needs to open a Portfolio Investment Scheme (PIS) account with a bank. As per RBI guidelines, it is important to maintain two separate accounts for repatriable and non-repatriable shares.
Under PIS scheme, you can buy stocks using funds from your NRE account, and the sale proceeds will be credited to NRE account for repatriation. However, if you want to buy shares on a non-repatriable basis, then, the returns will be credited to your NRO account.
i) Important notice…
An NRI can open a PIS account with one bank only. Also, they are eligible for holding only one account for repatriable shares and one for non-repatriable shares, not beyond this.
Once you regain the permanent Indian resident title, you must close your PIS account.
4. Documents required for opening a PIS Account
When you open a PIS account, approach a bank with the following set of documents. However, the list may vary slightly from bank to bank.
If at the time of opening the NRI Demat account you are overseas, all the copies of the documents need to be self-attested and duly attested by the Indian Embassy. If you are in India, carry the originals, the bank staff will attest the copies. Listed are the documents:
1) Address proof in India
2) Latest photographs
3) Copy of PAN card
4) Proof of address abroad
5) FEM Declaration
6) Copy of Visa and Passport
7) Invalidated cheque leaf of NRE/NRO bank account.
5. Some useful facts about NRI Demat Account
- NRIs can invest in stocks and securities of Indian companies, government securities, etc.
- The NRI demat account cannot be opened or operated by an Indian Power-of-Attorney holder in the absence of the NRI. The person also cannot make payment out of India on behalf of the NRI.
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What is FEM Declaration? Is it FEMA Declaration ?
I have some shares in my Demat account. Can I transfer all my shares to PIS account & trade? I am NRI right now.
The term “FEM Declaration” likely refers to the FEMA Declaration. Yes, as an NRI, you can transfer your shares to a PIS account and trade.
Hello,
I have been trying to find out about this DMAT account re-designation from NRE / NRO to Resident. I have not been able to find out the correct answer yet but am posting here hoping to get some help on this.
I have maintained NRI status from 2004 till now. In 2015 I took a break was was on India without work for almost 24 months. During this period the bank I held PINS account with forced me to change my account status to resident. In the process closed my PINS account and closed my NR Demat and converted it to resident DMAT account. This was forced upon me because I kept telling them that the break is temporary and I will be going back to work out of India once again soon. (Even IT department allows a break if is temporary.)
Since my DMAT account became residet, I did not carry out any trasaction, as all the funds used to invest in Equity, was NRE fund (from PINS account).
Now since last 14 months I have been strugling with this bank to get all those equity back into a DMAT account linked to PINS account so that I can repatriate the NRE funds but without any success. Bank is telling me that I have to sell all the equity and get the funds into NRO account, open DMAT for NRE/PINS account and do new investement. But if I do that I loose the repatriablility of those funds which were originally NRE.
Does anyone know if the DMAT account which was originally opened as NR which got converted to resident, be converted back to NR as there has been no trasaction since the day it was designated as resident ?
You need to inform the depository participants about the status change. You need to open a new demat account with ‘resident’ status and transfer the balance held in the NRI account to the new one.
You trading account with NRI status also needs to closed and you need to open a new trading account with residential status.
Good post. Thank you!
Thanks.
Well Written.
Valuable.
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