Tips for NRIs to Invest Money in India.
India possesses a lot of investment opportunities. Non resident Indians (NRIs) are beginning to understand the potential of India. The last decade has seen an upsurge of investments from them. More than their country of residences, their country of origin is providing them the promise.
India is experiencing an economic boom. There are plenty of avenues for NRIs to invest in. There have been ups and downs in the Indian economy. Currently there is a slight economic trough. But this too is a passing phase. Very shortly the economy will be up on its feet.
Who is a NRI?
- As per the Foreign Exchange Management Act (FEMA), 1999 – a NRI is a person residing outside of India, who is either an Indian citizen or a person of Indian origin (PIO).
- A person who has stayed for a minimum of 182 days during the current financial year and more than 365 days consecutively for the past four years is a resident of India.
- NRIs can avail non-resident benefits if they complete residence in the country for a minimum of 60 days but less than 182 days in a given financial year. This is in addition to their stay in India for the past 4 years being 365 days a year.
Getting started with investments
NRI investments have to be made in the Rupee denomination. For investing in mutual funds, non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR) has to be opened in a bank in India.
- NRE account – A rupee account. Funds can be transferred to the bank in the country of residence.
- NRO account – a non-repatriable rupee account.
- FCNR account – similar to NRE account. But money is held in foreign currency.
NRE/NRO account is used to remit money for investments. NRE/NRO account cheques or drafts can be issued by NRIs to make their investments. Investments made through cheques or drafts need attestation of foreign inward remittance certificate (FIRC) or any form of document by the bank confirming the source of funds.
The FIRC is a proof of payment. It is issued by the bank that has the account from where the funds were sourced. Resident investors need to submit Permanent Account Number (PAN) and address proof.
Investments in equities
- The Reserve Bank of India (RBI) has the portfolio investment scheme (PIS). This scheme is ideal for NRIs to invest in. After opening a NRE/NRO account with a RBI-authorized bank, a NRI can open a PIS account for trading in stocks.
- The RBI tracks investment activities of NRIs through PIS accounts.All investments have to be made through the PIS account. NRIs cannot hold more than 10% capital of a company.
- After this, NRIs proceed to open a demat account and a trading account. SEBI (Securities and Exchange Board of India) registered brokerage firms offer this facility. NRIs are denied the facility to conduct transactions directly, and have to do it through stock brokers.
- NRIs are disallowed from selling their shares within two days.
Investing in IPOs
- PIS does not purview investments made by NRIs to Initial Public Offerings (IPOs) of issuing companies.
- It is the responsibility of the issuing company to inform the RBI the number of shares it has issued to NRIs.
- Subscription to IPOs is made through NRE/NRO accounts.
- IPO shares can be sold without a PIS account.
- NRIs are required to pay tax on the gains they made.
Investing in India on a long term basis is a sure route to success. Given the expanding potential of the Indian economy, its progress to being a fully developed nation is supported equally by NRI investments.
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