As India's economic growth explodes, stock market has emerged as one of the most appealing investment vehicle for domestic as well as foreign investors. There has been increased foreign capital investment due to economic liberalization policies of Indian government. Abolishment of long-term capital gain tax has also made stock market investment more attractive.

Today, the country is one of the fastest growing economies in the world and also amongst the most preferred investment destinations for the best of companies across the globe. With the government focusing on developing the debt market, state of the art trading, settlement and risk management practices, and the fast growth of derivatives market has made the country a very attractive destination for investments from foreign nationals.

Non-Resident Indian (NRI)

The Foreign Exchange Management (Deposit) Regulations, 2000 and FEM (Investment in Firm or Proprietary concern in India) Regulations, 2000 defines a Non Resident Indian as a person resident outside India who is a citizen of India or is a person of Indian Origin. Thus, to qualify as a non- resident Indian, a person should be:
(1) Residing outside India; and
(2) A citizen of India or a person of Indian Origin

Section 2(w) of FEMA,1999 defines a person resident outside India as a person who is not resident in India. A person resident in India is defined in Section 2(v) as under:

A person residing in India for more than 182 days during the preceding FY but does not include:

A person who has gone out of India or who stays outside India, in either case
(1) for or on taking up employment outside India, or
(2) for carrying on outside India a business or vocation outside India, or
(3) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.

A person who has come to or stays in India in either case, otherwise than
(1) for or taking up employment in India, or
(2) for carrying on in India a business or vocation in India, or
(3) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period

Person of Indian Origin (PIO)
PIO means a citizen of any country other than Bangladesh or Pakistan, if

• He at any time held an Indian Passport
• He or either of his parents or his grandparents was an Indian and permanent resident in Undivided India at any time
• A spouse of a citizen of India or of a person of Indian origin is also deemed to be of Indian Origin even though she / he may be of non-Indian origin

Portfolio Investment Scheme (PIS)

PIS is a RBI regulated scheme and is required if NRIs/PIOs want to trade in secondary market in India through SEBI registered share broker. Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Person of Indian Origin (PIOs) are allowed to invest in the secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

NRIs are permitted to invest in shares / convertible debentures of Indian companies, by Reserve Bank of India, under Portfolio Investment Scheme (PIS), in secondary market through a registered broker on a recognized Stock Exchange. Reserve Bank of India, vide A.P.(DIR Series) Circular No. 13 dated November 29, 2001 has prohibited OCBs to invest under PIS in India. Further, the OCBs that have already made investments under PIS have been allowed to continue to hold such shares / convertible debentures till such time these are sold on the stock exchange.

The guidelines of Reserve Bank of India in respect of ceiling on investments are as under:

• Investment in shares of a company, by each NRI (both on repatriation and non-repatriation basis) shall not exceed 5% of the paid-up value of shares of the company concerned.

• Investment in convertible debentures of a company, by each NRI (both on repatriation and non-repatriation basis) shall not exceed 5% of the paid-up value of convertible debentures in each series, issued by the company concerned.

• Aggregate investments by NRIs will be subject to a ceiling of (a) 10% of the total paid-up equity capital of the company concerned: and (b) 10% of the total paid-up value of each series of convertible debentures issued by the company concerned. Such Indian companies shall however raise the ceiling of 10% to 24% or such ceilings a may be decided by the companies, by passing a special resolution in the General body of the company.

• In case of investments on repatriation basis, the payment for purchase of shares / debentures should be by way of debit to the investors NRE account. In case of investments on non-repatriation basis, the payment for purchase of shares / debentures shall be by way of debit to the investors NRO account also.

• The net sale / maturity proceeds of shares / convertible debentures, after payment of taxes, shall be credited only to the investors NRO account if the investment was made on non-repatriation basis and shall be remitted abroad / credited to the investors NRE / NRO account if the investment was made on repatriation basis.

PIS TransactionNRIs are allowed to Purchase and sale of shares/convertible debentures of Indian companies through Secondary Market.

Requirements

NRIs can invest in the Indian stock market under PIS, which is regulated by RBI. NRIs are not allowed to trade in the stock market on an intra-day basis. One can start the investment process by following the below-mentioned four steps:

1. Open a bank account (NRE/NRO)
   NRE (Non Resident External) Bank Account
   Any person residing outside India may open NRE account. This account permits a NRI to hold and maintain foreign currency in Indian Rupees. It is maintained in Indian Rupees, both in the form of savings account and fixed deposit. Principle and Interest earned thereon are repatriable
   
   NRO (Non Resident Ordinary) Bank Account
   Many Non-Resident Indians earn income in India through rent, dividends, pension and so on. NRO account allows NRIs to conveniently deposit and manage such local funds. It is maintained in Indian Rupees, both in the form of savings bank and fixed deposit. It is taxable under Indian Income Tax. Principle is NOT repatriable whereas interest earned thereon is repatriable after payment of applicable taxes. This type of account is best suited for NRIs who have some sort of income accruing in India viz., rental income, dividend income, etc.

2. Open a PIS account
   NRIs can invest in India's stock market with Repatriation (from NRE PIS a/c) and on non-repatriation basis (from NRO PIS a/c). Portfolio Investment Scheme (PIS) allows NRIs to invest in shares of Indian companies, in secondary market, under repatriation or non-repatriation basis in respect of shares or convertible debentures sold or purchased through a registered stockbroker on a recognized stock exchange. Any other modes of acquiring shares are not covered under this scheme ie, shares purchased through IPOs, as resident individuals, bonus shares etc. RBI has authorized a few branches of each bank to conduct business under Portfolio Investment Scheme (PIS) on behalf of NRIs/OCBs. You can have as many NRI/NRO accounts in India but you should have only one designated bank for sale/purchase of shares under the Direct/Portfolio Investment Schemes. RBI guidelines permit NRI investors to designate only one bank authorized by RBI to undertake purchase/sale of shares under PIS.

3. Open a Demat Account
   An investor wishing to utilize the services offered by a depository has to open an account with depositary through the depositary participant. This is known as Demat account. This refers to a dematerialized account and its purpose is to store the securities bought by the investor.

4. Open a Trading Account
   NRE Trading account: This Trading Account will be similar to your Normal Trading Account. But it should be in the status of NRE. One can buy and sell shares through this account. By repatriating from this account, you can take back your profit, if you wish. This trading account will be linked with your NRE or NRO demat account.
   
   NRO Trading account: Your income in India or if you have any shares that are held in India, then they will go into your NRO Demat account and you are required to trade through your NRO Trading Account. Reinvestment of the same in India is possible.

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