Some conditions that make it possible for NRIs to buy shares of companies here, and some procedures involved
A non-resident Indian (NRI) is a citizen or person of Indian origin (PIO) who resides outside India. Under the Foreign Exchange Management Act 1999 (FEMA), a person who is not a 'person resident in India', as defined under Section 2(V) of the Act is considered as a 'person resident outside India'.
A PIO could be a citizen of any country but should have held an Indian passport, his parents or grandparents should have been citizens of India by virtue of the Constitution of India or the Citizenship Act 1955, he should be the spouse of an Indian citizen, or should be a person referred to in sub clause (a) or (b).
Investments by PIO in domestic securities are treated in the same as investments by NRIs and require the same approvals, while being eligible for the same exemptions.
A NRI or PIO can open a demat account with any depository participant (DP). He needs to specify the type (NRI or resident) and the sub-type (repatriable or non-repatriable) in the account opening form collected from the DP. No permission is required from the Reserve Bank of India (RBI) to open a demat account. However, credits and debits from the demat account may require general or specific permissions as the case may be, from designated banks. No special permission is required by an NRI for dematerialization or rematerialization of securities.
Holding securities in the demat form only constitutes change in form and does not need any special permission. However, only those physical securities which are NR-repatriable and NR non-repatriable can be dematerialised in the corresponding depository accounts. The securities purchased under repatriable and non-repatriable category cannot be held in a single demat account. An NRI must open separate demat accounts for these securities.
According to Section 6(5) of FEMA, a NRI can continue to hold the securities which he had purchased as a resident Indian, even after he has become a NRI, on a non-repatriable basis. In case a NRI becomes a resident in India, he will be required to change the status of his holding. It is the responsibility of the NRI to convey the change of status to the designated bank branch, through which he had made the investments in the portfolio investment scheme, and to the DP with whom he has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to the resident account, and then the NRI demat account should be closed.
NRIs are also permitted to make direct investments in shares and debentures of domestic companies and units of mutual fund. They are also permitted to make portfolio investments - purchase of shares and debentures of domestic companies through the stock exchange. These facilities are granted both on repatriation and non-repatriation basis.
Further, NRIs can purchase securities by subscribing to public issues. The issuing company is required to issue shares to NRIs on the basis of specific or general permissions from the government or the RBI. Therefore, individual NRIs need not obtain any permission. NRIs do not require any permission to receive bonus or rights shares too.
They can purchase existing shares and debentures of domestic companies by private arrangement. The RBI permits NRIs to purchase shares and debentures of existing domestic companies on non-repatriation basis. An undertaking about non-repatriation is to be given.
NRIs can also obtain loans abroad against the collateral of shares or debentures of domestic companies. The authorised dealers have been permitted to grant loans and overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares or debentures held by them, provided the securities concerned were acquired on repatriation basis.
The purchase and sale of shares by NRIs requires permission from designated banks. Therefore, a DP may ask for a copy of the permission from the designated bank before executing a debit (sale) transaction. They may not enable standing instructions for automatic credit unless a copy of the permission from the designated bank for sale or purchase is given.
A non-resident Indian (NRI) is a citizen or person of Indian origin (PIO) who resides outside India. Under the Foreign Exchange Management Act 1999 (FEMA), a person who is not a 'person resident in India', as defined under Section 2(V) of the Act is considered as a 'person resident outside India'.
A PIO could be a citizen of any country but should have held an Indian passport, his parents or grandparents should have been citizens of India by virtue of the Constitution of India or the Citizenship Act 1955, he should be the spouse of an Indian citizen, or should be a person referred to in sub clause (a) or (b).
Investments by PIO in domestic securities are treated in the same as investments by NRIs and require the same approvals, while being eligible for the same exemptions.
A NRI or PIO can open a demat account with any depository participant (DP). He needs to specify the type (NRI or resident) and the sub-type (repatriable or non-repatriable) in the account opening form collected from the DP. No permission is required from the Reserve Bank of India (RBI) to open a demat account. However, credits and debits from the demat account may require general or specific permissions as the case may be, from designated banks. No special permission is required by an NRI for dematerialization or rematerialization of securities.
Holding securities in the demat form only constitutes change in form and does not need any special permission. However, only those physical securities which are NR-repatriable and NR non-repatriable can be dematerialised in the corresponding depository accounts. The securities purchased under repatriable and non-repatriable category cannot be held in a single demat account. An NRI must open separate demat accounts for these securities.
According to Section 6(5) of FEMA, a NRI can continue to hold the securities which he had purchased as a resident Indian, even after he has become a NRI, on a non-repatriable basis. In case a NRI becomes a resident in India, he will be required to change the status of his holding. It is the responsibility of the NRI to convey the change of status to the designated bank branch, through which he had made the investments in the portfolio investment scheme, and to the DP with whom he has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to the resident account, and then the NRI demat account should be closed.
NRIs are also permitted to make direct investments in shares and debentures of domestic companies and units of mutual fund. They are also permitted to make portfolio investments - purchase of shares and debentures of domestic companies through the stock exchange. These facilities are granted both on repatriation and non-repatriation basis.
Further, NRIs can purchase securities by subscribing to public issues. The issuing company is required to issue shares to NRIs on the basis of specific or general permissions from the government or the RBI. Therefore, individual NRIs need not obtain any permission. NRIs do not require any permission to receive bonus or rights shares too.
They can purchase existing shares and debentures of domestic companies by private arrangement. The RBI permits NRIs to purchase shares and debentures of existing domestic companies on non-repatriation basis. An undertaking about non-repatriation is to be given.
NRIs can also obtain loans abroad against the collateral of shares or debentures of domestic companies. The authorised dealers have been permitted to grant loans and overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares or debentures held by them, provided the securities concerned were acquired on repatriation basis.
The purchase and sale of shares by NRIs requires permission from designated banks. Therefore, a DP may ask for a copy of the permission from the designated bank before executing a debit (sale) transaction. They may not enable standing instructions for automatic credit unless a copy of the permission from the designated bank for sale or purchase is given.
