Non-resident Indians (NRIs) and People of Indian Origin can invest in the Indian stock market, but they must follow regulations that are severe than those govern local investors. Here are some of the key rules:
• NRIs must get approval under the portfolio investment scheme. It is given by banks. A person can deal with only one bank at a time.
• Intraday trading is prohibited — it means no speculation. Shares can be sold only at least two days after purchasing. The practice of buy-today-sell-tomorrow isn’t possible.
• Can purchase only up to 5 per cent of the paid-up capital of a company. Under this rule, shares of certain companies cannot be purchased. Read more @ Reserve Bank of India (RBI) page.
• Short-selling is not allowed. Need to pay in full for buying shares. Can sell only what is in hand.
• Must report contract notes daily to banks. Bank is responsible to report it to the RBI.
• Must do bill-to-bill payment. No adjustments are allowed. Payment should be made separately while buying and selling.
• Can apply for and invest in initial public offering (IPO) and mutual funds, but only through Non Resident Rupee (NRE) or Non Resident Ordinary Rupee (NRO) accounts.
• Futures and options (F&O) transactions must be carried out through NRO accounts. The National Stock Exchange (NSE) will issue a special code for such deals. It should be quoted with the client code while conducting share transactions.
• Caution: NRI trading accounts are regulated by both the Securities and Exchange Board of India (SEBI) and the RBI. Transactions that do not comply with rules could attract severe penalties, including under the Foreign Exchange Management Act (FEMA).
(The author is a business partner in Angel Broking)