India is one of the fastest-growing economies in the world. As a result, it is regarded as advantageous for investment purposes, particularly for NRIs in Indian firms. NRI is a Non-Resident Indian who is residing outside India. Furthermore, in order for an NRI to trade in the Indian stock market, a demat account is required. An NRI’s demat account also allows them to trade in bonds, equities, IPOs, mutual funds, and other securities.
This post will provide a comprehensive guide to NRI Demat accounts (Non-Resident Indian)
What is a Non-Resident Indian (NRI)?
“An NRI is a person resident outside India who is either a citizen of India or a person of Indian origin (PIO),” according to FEMA (Foreign Exchange Management Act).
According to taxes rules, an NRI is someone who does not meet any of the two qualifications –
- If a person spends 182 days or more in India during a fiscal year.
- If a person spent 60 days or more in India in the previous year and 365 days or more in the four years immediately before the previous year.
Can NRIs invest in Indian stocks through a stock exchange?
Non-Resident Indians (NRIs) can engage in the Indian stock market through the Portfolio Investment Scheme (PIS) on both a repatriation and non-repatriation basis. Furthermore, the PIS scheme is a component of the Reserve Bank of India (RBI) that allows NRIs to purchase shares or convertible debentures from the stock exchange through a bank account with a designated branch. However, according to the most recent recommendations, the PIS programme is not necessary for NRO (Non-Resident Ordinary) investments because they are recognised as investments by residents.
What exactly is a Demat Account?
A demat account is also referred to as a demat account. It is an electronic account that keeps financial securities. A demat account also makes it easier to buy and sell financial securities. Furthermore, it holds dematerialized stock shares, debentures, bonds, government securities, ETFs, mutual funds, and so on. A demat account is similar to a bank account in that it is credited or debited when you purchase or sell shares of a corporation.
National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL) manages all demat accounts in India (CDSL).
Is it possible for an NRI to have a Demat account?
Both resident Indians and non-resident Indians (NRIs) in India can open a demat account to trade in equity. However, if an NRI want to open a demat account, they must adhere to FEMA regulations (Foreign Exchange Management Act). A non-resident Indian (NRI) can open both repatriable and non-repatriable demat accounts.
Non-Resident Indian NRIs can only trade in secondary markets after obtaining Portfolio Investment Scheme (PIS) licences from specified banks to make investments in India.
According to the Reserve Bank of India (RBI), an NRI can only own up to 5% of the paid-up capital in an Indian company. An NRI can invest in IPOs on a repatriable basis utilising an NRE demat account. If the NRI makes non-repatriable investments, the NRO account and NRO demat will be utilised.
However, assume an individual holds a demat account prior to obtaining NRI status. In such instance, they can convert it to NRO status and trade after leaving the country, or they can start a new account. In addition, the existing brokerage firm will transfer the previously owned shares to the new NRO holding account.
Types of NRI Demat Account
NRI Demat Account is a cardholder account for NRI, PIO (Person of Indian Origin), and OCI (Overseas Citizen of India). It is extremely similar to a resident demat account in terms of account opening, transactions, and costs. A demat account is required to invest in the Indian stock market. This demat account can also be used to invest in mutual funds, ETFs, and convertible debentures.
The two forms of NRI Demat Account are as follows.
NRE Demat Account:
An NRE bank account is coupled with an NRE demat account. The purpose of opening an NRE account is to manage funds earned abroad. As a result, the money is entirely repatriable, which means it can be transferred abroad. An NRE Demat Account is often referred to as a Repatriable Demat Account. The rationale for this is that all revenues from the sale of securities can be moved overseas.
NRO Demat Account:
An NRO bank account is coupled with an NRO demat account. To manage earnings earned in India, an NRI registers an NRO account. An NRO Demat Account is often referred to as a Non-repatriable Demat Account. The reason for this is because not all money can be transferred abroad. After taxes, the primary amount of investments can be repatriated. According to RBI regulations, it is permissible to move up to $1 million of funds abroad in a fiscal year. After TDS is subtracted, the interest collected on this account is remittable.
Overall, an NRI must open two distinct demat accounts for repatriable and non-repatriable investments, according to RBI regulations.
NRE Demat Account vs NRO Demat Account
The following are the differences between NRE & NRO Demat Account.
|Parameters||NRE Demat Account||NRO Demat Account|
|Purpose||For investments on a repatriation basis||For investments on a non-repatriation basis|
|Type of bank account linked||NRE bank account||NRO bank account|
|Repatriation of Funds||Fully repatriable||The principal amount is repatriable after taxation. One can transfer up to $ 1million in a financial year. The interest earned is repatriable after TDS is deducted.|
|Also known as||Repatriable demat account||Non-repatriable demat account|
NRI Demat Account Opening Process
An NRI can open a demat and trading account with a depository participant, stockbroker, or bank that is registered with NSDL and CDSL. As a result, stockbrokers offer two-in-one account services, whereas banks offer three-in-one account services. However, all three provide the requirements for opening a demat account.
To begin, the NRI must choose whether they want a’repatriable demat account’ or a ‘non-repatriable demat account.’ They can open a demat account online or in person.
The steps to open a demat account are as follows:
- Download and complete the demat account application form.
- The following step is to attach the relevant paperwork. The Indian embassy or any other competent body must self-attest and notarize the documents.
- Submit the completed form to the individual’s preferred participant.
NRIs should have the following items before opening a demat and trading account:
- The applicant’s PAN card
- The applicant’s NRI bank account (NRE or NRO).
- The Reserve Bank of India issued the PIS letter of approval immediately to the NRI applicant.
What documents are needed to start an NRI Demat Account?
The documentation necessary to open an NRI Demat Account are as follows:
- An account opening form that has been completed and signed by the account holders.
- Portfolio Investment Scheme (PIS) authorisation letter given directly by the
- To the NRI applicant, the Reserve Bank of India.
- Passport-sized photo of the account holder, with their signature across the bottom.
- PAN card scanned copy
- Proof of the holder’s overseas address.
- Visa and passport photocopies
- A NRO/NRE bank account’s cancelled cheque must be connected to a demat account.
- To use the nomination facility of the demat account, the nominee must provide a photograph and signature.
All of the above documents must be attested by a Notary Public, a Banker, or the Indian Embassy in the nation where the NRI resides.
NRI Demat Account Advantages
The following are the advantages of an NRI demat account:
- An NRI can invest in the Indian stock market swiftly and simply from anywhere in the globe. NRI transactions are reflected in the demat account immediately.
- The physical documentation of transactions is also reduced.
- Transactions in NRI demat accounts are processed fast and efficiently.
- Forgery, loss of physical papers, late delivery, and other issues are rare in NRI demat accounts.
- Even a single share can be held in an NRI demat account.
- An NRI can invest in stocks, convertible debentures, ETFs, mutual funds, and other financial instruments.
Charges for NRI Demat Accounts
All demat accounts in India are subject to various fees, whether they are resident or non-resident. The demat account and transaction-related fees are charged by central depositories and brokerage depository participants. In the case of NRIs, however, they must also pay government taxes. The following fees apply to NRI demat accounts:
1. Account Opening Charge (One Time):
It is the most prevalent cost charged by every brokerage or depository participant in India to all customers, whether they are NRIs or domestic Indians. The account opening fee is charged by the brokerage business for processing and opening a demat account with that broker. It is a one-time fee paid at the time of account opening. Account opening fees are often waived as part of brokerage firm promotional efforts. In some circumstances, brokerage houses’ promotional programmes completely waive the account opening fees.
2. Annual Maintenance Charges (Yearly):
There are fees associated with maintaining and operating a demat account with a broker. This price is typically collected annually by brokers and is known as AMC or Account Maintenance Charge. This fee applies to both residents and non-residents. Whether it is an NRI or a resident demat account, the individual must pay these fees each year in order to continue using the account the next year. This price, however, is substantially smaller than the account opening fee.
3. Charges for Debit Transactions:
A small fee is levied whenever shares in the demat account are sold or withdrawn. This is referred to as a debit transaction cost. This fee must be paid by the demat account holder with each fund withdrawal from their demat account. Typically, a fee is levied each time an individual sells shares and withdraws them from their demat account. Brokers may also charge a fixed fee for each transaction. Otherwise, some brokerage houses charge a portion of each transaction’s value.
4. Additional Fees:
Other expenses related with demat accounts include pledging fees and fees for altering personal information such as address, phone number, and so on; some brokerage firms also charge fees for portfolio change.
How do I check the balance of my demat account?
- An investor can check their balance via either the CDSL portal or their broker portal.
- To check the balance via the CDSL portal, go to the CDSL portal.
- To proceed, enter the PAN.
- Sign in using your Demat account number.
- To log in, submit and enter the OTP received to the registered mobile number.
- After logging in, users can access their demat account statement.
Which is the best demat account for NRI?
There are numerous brokerage firms and institutions that offer demat account services. With so many possibilities, investors are perplexed as to which one to select. However, the following considerations should be made while starting a demat account:
- The account can be opened quickly. It is usually recommended to use a SEBI-registered intermediary depository.
- Broker expenses and maintenance fees should also be investigated. The one with low charges is good to go.
- A seamless interface should also exist between the bank account and the demat account. Furthermore, internet trading should be simple to use via websites or apps.
- In addition, the depository participant should supply traders with analytics on profitability, diversification, valuation, and direct calls to action.
- The depository or broker should also provide some additional services that set them apart from the competition.
As a result of these considerations, an NRI investor can determine which demat account is ideal for them.
Is it necessary to obtain RBI approval before opening a Demat Account?
An NRI need a PIS authorization letter from the RBI in order to invest and trade in the Indian stock market on a repatriation basis. The PIS letter allows NRIs to buy and sell shares on the Indian stock exchange. All of these transactions pass through the NRE bank account. Also, the bank where you have your NRI account might assist you in obtaining this permission.
If, on the other hand, you want to invest for non-repatriation purposes, you do not need an RBI PIS approval. In this situation, all you’ll need is an NRO account linked to a demat and trading account.