uTrade Algos
The Indian stock market is a lucrative market. People from all over the world wish to invest in it and reap the benefits. The Indian economy is among the fastest-growing economies in the world, and every investor wants to be a part of this growth. Non-Resident Indians (NRIs) especially look to invest in the Indian stock market, primarily if they have already been investing while residing in India. Indians can openly invest in the stock market without any hassles through a Demat account. Based on whether you reside in India or are an NRI, you can easily open a Demat account and start your trading journey.
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Who Is an NRI or Non-Resident Indian?
A resident of India is an individual of Indian origin residing in India. There are a few conditions that make an individual a resident of India. It can be anyone who is a citizen of India or a person of Indian Origin (PIO) and who meets the following conditions as per taxation rules:
- A person is physically present in India for 182 days or more in the financial year.
- A person was in India for 60 days in the last year and 365 days or more during the four years immediately preceding the previous year.
If any Indian citizen or PIO fails to meet these criteria, they are termed an NRI. Even as an NRI, there are many investment options through the Demat account for NRIs.
Can an NRI Hold a Demat Account?
An Indian citizen or an NRI can open a Demat account to trade in the stock market. For an NRI Demat account, there are additional steps when compared to a normal Demat account. There are certain rules that an NRI must follow under the Foreign Exchange Management Act (FEMA). There are three major types of Demat accounts, two of which can be opened by NRIs only. NRIs can invest in various Indian companies through Initial Public Offerings (IPOs) and buy shares as per the guidelines set by the Reserve Bank of India (RBI). If an Indian resident with a Demat account becomes an NRI, he can convert his Demat account into a Non-Resident Ordinary (NRO) Demat account. All his holdings will be transferred to the new account by the stockbroker of the previous account.
Types of NRI Demat Accounts
Based on your usage and residency, the various types of Demat accounts are:
Regular Demat Account
It is the normal Demat account for the use of Indians to make trades in the stock market. It cannot be used by NRIs and must be held and used by Indians residing in India.
Repatriable Demat Account
A repatriable Demat account is also known as a Non-Resident External (NRE) Demat account, as it has an NRE bank account linked to it. Any individual with this type of Demat account can transfer all their earnings and profits abroad and make use of it. This ensures that funds are managed from abroad, and profit can be used by the trader as well.
Non-repatriable Demat Account
An NRO bank account is associated with a non-repatriable Demat account. For this reason, this type of Demat account is also called the NRO Demat account. In the case of NRIs, only some of the earnings gained from the use of this Demat account can be transferred abroad. There is a transaction limit of up to 1 million USD of funds that can be transferred in a given financial year. Any form of income through this means is repatriable after tax deduction at source (TDS) occurs. Simply put, a maximum of 1 million USD is repatriable after taxation.
How to Open an NRI Trading and Demat Account?
As per RBI regulations, an NRI must open two accounts for repatriable and non-repatriable investments. For any individual to open a Demat account, they must approach a depository participant (DP). A DP has membership with depositories like National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). NSDL and CDSL are both responsible for all Demat accounts in India. A DP can be a bank, a non-banking financial company (NBFC), or a stockbroker. Making a 2-1 or 3-1 account is very beneficial where your bank account, Demat account, and trading account are all linked. As an NRI, there are additional requirements that must be fulfilled, which means additional documents are needed. The documents required by an NRI are:
- PAN card
- Passport
- Visa
- The Portfolio Investment Scheme (PIS) letter of approval, which is issued directly by the Reserve Bank of India to the NRI applicant.
- NRI bank account details
- Cancelled cheque of the NRO/NRE bank accounts
All these documents must be self-attested and notarised by the Indian embassy or any other competent authority. With all these documents ready, an NRI must choose a DP that provides the services they are looking for. They must fill out the Demat opening form and submit the form and all the documents to the DP. Based on all of this, the Demat account will be opened, and it will be accessible without any issues.
Conclusion
As an NRI, the Indian stock market is a great investment option to either generate a large corpus or be used as an extra income. Knowing the different types of Demat accounts can help you decide the best Demat account for NRI. As an NRI, one can have a single NRE and a single NRO Demat account. Both can be used for investment and trading. Knowing which trading account to use for which trade is beneficial knowledge.