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Guidelines for NRIs and OCIs to Invest in Indian Stock Markets

This article was posted on Mar 15, 2018

India’s vibrant economy and the resultant boom in stock markets have attracted the attention of Non-Resident Indians and Overseas Citizens of India, other than local investors.  Indeed, Indian stock markets are a proposition for NRIs and OCIs: they can buy stocks in the primary and secondary markets of the country for a fraction of the price of foreign shares. This is made possible due to high currency exchange rates currently prevalent. For example, a US Dollar trades for about Rs.65 while Euro fetches nearly Rs.80 and UK Pound Sterling, approximately Rs.90.

Secondly, Indian stock prices are booming, despite occasional downturns. Stable political scenario combined with various initiatives aimed at attracting foreign investors to India has provided a great stimulus to the industry and consequently, stock markets. NRIs and OCIs wanting to resettle in India upon retirement also view stocks in this country as an attractive investment option for good returns post-retirement.

Given this scenario, we look at ways and means how NRIs and OCIs can invest in India’s stock markets. Therefore, we provide a step by step guide for NRIs and OCIs to invest in Indian stock markets.

Definition of Non-Resident Indian

The Indian government and its various authorities define an Indian citizen who has lived outside this country for over 182 days and holds permanent residency or work permit of a foreign country as NRI. Additionally, spouses and children of these Indian nationals living abroad are also categorized as NRIs. The term NRI is applicable only to those persons who reside abroad but continue to hold Indian citizenship and passport.

Definition of Overseas Citizen of India

Overseas Citizen of India now also consists of people earlier categorized as Person of Indian Origin. The OCI category covers a lot of individuals. These include the former Indian nationals who have acquired foreign citizenship, children and spouses of former Indian nationals who have acquired foreign citizenship, foreign spouses of Indian nationals and children who hold foreign nationality whose either parent is an Indian citizen.

The OCI status is granted by India’s Ministry of External Affairs and Ministry of Home Affairs, upon application at any Indian diplomatic representation abroad or made in India through appropriate channels. An OCI card (sticker) is pasted on the foreign passport of such individuals. They are entitled to specific rights enjoyed by Indian nationals, barring a few such as a right to the political office, among others.

Step-1: Open Bank Account

Under Reserve Bank of India and the Indian government rules, NRIs and OCIs can open three types of bank accounts here.

  • Non-Resident External (NRE)
  • Non-Resident Ordinary Account (NRO)
  • Foreign Currency Non-Resident Account (FCNR)

Of these, NRIs and OCIs can utilize only NRE and NRO accounts for investing in Indian stock markets.

Additionally, NRIs and OCIs also have the option of investing in real estate. The Indian government also encourages participation of NRIs and OCIs in various other investment options with high returns such as foreign currency fixed deposits, among others. To invest in Indian equity markets, NRIs and OCIs have to remit funds in Indian Rupees to their NRO/ NRE accounts held at any Indian bank. This remittance has to be made through regular banking channels such as net banking, cheques and demand drafts or wire transfers.

In some cases, they have to attach a Foreign Inward Remittance Certificate (FICR) issued by the foreign agency or bank through which the money is remitted. FIRC is required to prove that funds you remit as NRI or OCI come from your regular and legal income abroad. This requirement is enforced to prevent money laundering and other illegal financial transactions involving foreign currency in India.

Step-2: Open Demat Account

Every individual wanting to buy stocks in India needs a De-Materialized (Demat) Account. You can open a Demat Account with your bank or through any Asset Management Company or reputed stock brokerages that provide the facility.

Demat Accounts are mandatory to buy and trade in stocks in India. This is because Indian companies no longer issue paper certificates for shares you buy. Instead, they are held in an electronic form in your Demat Account.

Step-3: Trading Account

If you wish to trade in Indian stocks, you will also require a Trading Account with any bank, AMC or stock brokerage company. Your NRE/NRO account has to be linked with the Demat and Trading accounts for seamless transfer of funds to invest in Indian stock market.

KYC Requirements for NRIs and OCIs

Under Indian government and RBI laws, all financial transactions in this country, including stock trading is governed by Know Your Customer regulations. NRIs and OCIs who wish to invest in Indian stock markets also have to comply with this formality.  To complete KYC you will require:

  • Copies of Indian passport (for NRIs) and foreign passport (for OCI). These copies should include pages where your picture, passport number, date of issue and validity and permanent address appear.
  • Proof of residence in a foreign country such as residence/ work permits NRIs. OCIs have to submit copies of their OCI card.
  • Address for correspondence in a foreign country.

Aadhar Card

Under existing rules of Unique Identity Development Authority of India (UIDAI), NRIs and OCIs need not apply for Aadhar card. However, NRIs and OCIs who have lived in India for 182 days or more can apply for an Aadhar card and utilize it for KYC.

Permanent Account Number (PAN)

Once again, NRIs and OCIs in India need not mandatorily avail the Permanent Account Number of PAN issued by the Income Tax Department of India. However, a PAN card is essential if investment from your stocks trade is taxable under Indian laws. You can apply for a PAN card online from your country of residence or during a visit to India.

NOTE: NRIs and OCIs holding an Aadhar card and PAN card can sometimes find it easier to invest in Indian share markets as well as other financial products in this country including Mutual Funds and Systematic Investment Plans among others.  It can save you the hassle of performing KYC manually, using your passport.

Subscribing to IPOs

NRIs and OCIs can buy stocks of Indian companies through Initial Public Offerings that are made through banks, AMCs, and stock brokerages. The application has to be done online through your NRO/ NRE account linked to Demat and Trading accounts. Some companies allot a specific quota for NRI and OCI investors.

Stock Trading at BSE and NSE

Since Indian laws prohibit individuals from directly trading in stocks at BSE and NSE, you will require an agreement with a good stock brokerage company. Through this agreement, you empower the stock brokerage to trade in Indian stocks on your behalf. Remember to get this agreement legalized through a Notary Public and court of law in India to avoid future disputes.

Generally, a stock brokerage will assign a sub-broker to offer you personalized services and advice on investments in Indian stocks. Alternatively, you can avail of a user account and password from the stockbroker to deal in Indian stocks on your own.

Proxy Investments by NRI/ OCI

As NRI or OCI you can also invest in Indian stock markets by proxy. This means you authorize a family member or friend to deal in the stock market on your behalf. In such a case, you need to provide a Power of Attorney executed before a Notary Public and registered in an Indian court of law to the designated person to deal on your behalf.

Additionally, you may also have to provide relevant certificates to banks, AMCs, and stock brokerages notifying them about the Power of Attorney given to your relative or friend for trading in Indian stock markets.

In Conclusion

As we can see, NRIs and OCIs can easily invest in Indian stock markets. Indeed, Indian stock markets provide you the best returns. Buying blue-chip Indian equities that offer secure investment and high returns is much cheaper than investing in similar shares listed on major foreign markets. Hence, if you are an NRI or OCI, you can actively consider buying and trading in Indian equities. They make good investment sense- for wealth building, provide financial security for future and are an excellent option while planning for retirement.

 

2 Responses

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  1. Mohan K Dhulipati Says:
    December 24th, 2018
    Posted at: 4:41 pm

    If the OCI is working and residing in India for more than a year, what additional conditions apply to him for investing in Indian stock and mutual fund market? Can you please elaborate?


  2. taran Says:
    June 18th, 2019
    Posted at: 9:02 pm

    can oci holder can sell share to ocsi??


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