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Frequently Asked Questions
Q1. Who is a Non-Resident Indian (NRI)?
A: Non-Resident Indian (NRI) means a “person resident outside India who is a citizen of India or is a person of Indian origin"[as per FEMA regulations]
Q2. Can NRI invest in shares in India through a stock exchange?
A: Yes, NRI can purchase shares or convertible debentures of an Indian Company through stock exchanges, under the portfolio investment scheme on repatriation and /or non repatriation basis.
Q3. Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?
A: Yes, NRIs are allowed to Invest in Exchange Traded Funds (ETFs). NRIs can invest in ETFs both on repatriation as well as non repatriation basis.
Q4. How can NRIs invest in shares in India?
A: As per Reserve Bank of India (RBI) guidelines, NRIs who wish to invest in shares in India through a stock exchange need to have NRE (Non Resident External) /NRO (Non Resident Ordinary)/ PIS (Portfolio Investment scheme) bank account with the designated branch of any authorized dealer (bank) authorized by Reserve Bank.
Q5. What is a designated bank branch?
A: Reserve Bank of India has authorized few branches of each authorized dealer bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. NRI can select only one authorized dealer bank for the purpose of investment under portfolio investment scheme and route the transactions through the branch designated by the authorized dealer bank.
Q6. Who is a person of Indian Origin?
A: For the purposes of investments in shares/securities in India, person of Indian origin means a citizen of any country other than Pakistan or Bangladesh, if a) he at any time, held an Indian passport; or b) he or either of his parents or any of his grand parents were a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1995); or c) the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b)
Q7. Who is an Overseas Citizen of India (OCI)?
A: Under OCI Scheme operational from 02nd Dec 2005 government of India decided to grant overseas citizenship of India (OCI) commonly known as “dual citizenship”. A foreign national, who was eligible to become a citizen of India on 26.01.1950 or was a citizen of India on or at anytime after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grand children, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws, is eligible for registration as an Overseas Citizen of India (OCI). Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.
Q8. Can PIO (Person of Indian Origin) as well as OCI (Overseas Citizen of India) also invest in shares in India?
A: Yes, PIOs and OCIs can invest in shares in India.
Q9. What is an Overseas Corporate Body (OCB)?
A: ‘Overseas Corporate Body’ means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by Non-Resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by Non- Resident Indians directly or indirectly but irrevocably.
Q10. Can Overseas Corporate Body (OCBs) also invest in shares in India?
A: OCBs have been prohibited from making investments under Portfolio Investment Scheme. OCBs have been de-recognized as a class of investor entity w.e.f. September, 16, 2003. Further, the OCBs which have already made investments under the PIS are allowed to continue holding such shares till such time these are sold on the stock exchange.
Q11. What are the documents required to be collected from Investor to open a NRI/PIO/OCI trading & demat account?
A: Following documents are to be collected alongwith Account Opening Form (AOF) while registering NRI / PIO / OCI Clients • One photograph of the applicant • Copy of PAN Card • Copy of Passport indicating (a) place of birth as India (b) Valid visa –Work / Student/ Employment/ Resident permit • Copy of PIO / OCI Card in case of PIO/OCI • Proof of both Overseas Address & Correspondence Address (if different) – Copy of any one document – • Driving License • Passport • Utility Bills like Electricity Bill / Landline Telephone Bill (not more than 3 months old) • Bank statement (not more than 3 months old) • Notarized copy of Rent agreement/ Leave & license agreement / Sale deed • Client’s self-declaration that he has complied with & will continue to comply with FEMA regulations and other applicable laws • Client’s undertaking with complete Residential Address (other than PO Box address) in case he submits an Overseas Post Office Box address as Correspondence / Permanent address • Proof of all Bank Details mentioned on AOF – Bank Statement (not more than 3 months old) indicating the type of account (NRE/NRO/PIS) alongwith cancelled cheque in original • PIS permission letter from the respective designated Bank • Proof of all Demat Accounts mentioned on AOF (in case account is not with PL-DP) • In case of Mariner NRI, Certified copy of CDC (Continuous Discharge Certificate) or Mariner’s Declaration Note: Proof of Bank account & Demat account is to be collected in the name of first-holder only in case demat account is being opened with joint-holders
Q12. What are other client registration formalities to be taken care while registering NRI/PIO/OCI Clients?
A: In case of NRI/PIO/OCI client registration following care is to be taken: • AOF & documents are required to be signed by client himself and not by any Power of Attorney Holder. • All documents collected with AOF are self-attested by the client • Every cancellation / correction / over-writing is authenticated by the client (full signature) • If client’s In-person verification & document verification is not possible, then any one of following authorised persons are required to attest their KYC documents • Indian Embassy/Consulate General in the country where the client resides • Notary Public • Court Magistrate / Judge • Officials of Overseas branches of Scheduled Commercial Banks registered in India
Q13. Is it mandatory for a client to provide local (Indian) address?
A: At the time of client registration, client has to mandatorily provide his foreign address along with documentary proof of the same. If client so desires, he may give his local Indian address as correspondence address. In such scenario, additionally he will be required to provide documentary evidence in support of local address also.
Q14. Can two separate trading accounts namely (NRE & NRO) be opened by NRI?
A: Yes, clients can have two separate trading accounts based on NRE & NRO.
Q15. What are the additional requirement with respect to contract notes?
A: Contract notes in original for both purchase and sale transactions needs to be submitted with in 24 hours to specified by the designated bank to enable designated banks to report the same to Reserve Bank of India.
Q16. What precautions trading member needs to take while dealing with NRI Clients?
A: Trading member need to ensure that • Securities are not in RBI ban list before executing the order. • Clear funds are available for purchases. • Securities are available before executing any sell order. • Depending upon whether the purchases are made on repatriation /non-repatriation basis pay-out of the securities needs to be transferred to respective demat account. • Purchase/Sale transactions in cash segment should be settled by delivery only.
Q17. What is a Portfolio Investment Scheme (PIS)?
A: Portfolio Investment Scheme (PIS) is a scheme of Reserve Bank of India under which - Non Resident Indian (NRIs) can purchase/sell shares of Indian companies on Stock Exchanges under Portfolio Investment Scheme. For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/purchase transactions are to be routed through the designated branch.
Q18. Is there any ceiling on the Investments under the Portfolio Investment Scheme?
A: NRIs are allowed to invest in shares of listed Indian companies in recognized Stock Exchanges under the PIS. a. NRIs can invest on repatriation and non repatriation basis under PIS route up to 5 per cent of the paid- up capital / paid-up value of each series of debentures of listed Indian companies. b. The aggregate paid-up value of shares / convertible debentures purchased by all NRIs cannot exceed 10 per cent of the paid-up capital of the company / paid-up value of each series of debentures of the company. c. The aggregate ceiling of 10 per cent can be raised to 24 per cent, if the General Body of the Indian company passes a special resolution to that effect.
Q19. Can an NRI have two PIS account?
A: No, any NRI or a PIO can have only one PIS account in India. Say for example if he is having a PIS account with X bank and he wants to shift to HDFC Bank, then he has to close the PIS account there and open a PIS account with HDFC Bank.
Q20. How limit is monitored as per FEMA regulations?
A: On a daily basis, fresh purchases done by any NRI or a PIO need to be reported to RBI by the NRI. Since RBI could not get in touch with all the NRIs/PIOs or the demand for such facility was increasing, it has appointed some banks as designated banks to conduct this activity on its behalf. These designated banks in turn report the transactions to RBI.
Q21. How will bank come to know of the transaction done by an NRI?
A: The NRI or the PIO has to report all the transaction done on Indian stock exchanges to the bank with which he is maintaining the PIS account. This reporting has to be done within one working day after the execution of the transaction. Client has to submit the contract notes to the PIS department within one working day failing which the transaction can be held invalid. All this reporting under PIS happens automatically and no manual intervention of the client is required.
Q22. What is Non-PIS?
A: Non-PIS is an account for which the transactions are not reported to RBI. This account takes care of selling of all those shares, which are not allowed under PIS. Shares acquired under IPO or received as gift or bought as resident Indian can be sold under Non-PIS account.
Q23. Why is Non-PIS required?
A: Non PIS account takes care of certain transactions which are not covered under PIS: • Under IPO, it is the responsibility of the company to inform RBI of the shares it is allotting to NRIs; therefore these shares are not covered under PIS. • Shares bought as resident Indian, do not confer the ownership right to any NRI as a foreign body, therefore these shares are also not covered under PIS. • While declaring bonus, it is like a fresh issue of shares at zero cost, therefore the responsibility is of the company to inform RBI about the shares it is providing to NRIs. Also since bonus is provided to all, overall percentage holding remains the same. • While investing in MF, the voting right or the ownership of the shares remains with the AMC/trust and not the individual investing in the MF. Therefore, here also reporting is not required and these transactions are covered under Non-PIS.
Q24. How payments could be made by NRIs for shares purchased on stock exchange?
A: Payment for purchase of shares and/or debentures on repatriation basis has to be made by way of inward remittance of foreign exchange through normal banking channels or out of funds held in NRE/FCNR(B) account maintained in India. If the shares are purchased on non-repatriation basis, the NRIs can also utilize their funds in NRO account in addition to the above.
Q25. How NRIs/PIO can remit Sale proceeds?
A: In case of NRI/PIO, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE /FCNR(B)/NRO accounts of the NRI/PIO, whereas sale proceeds of non Repatriable investment can be credited only to NRO accounts
Q26. Can an NRI transfer shares purchased under PIS to others under private arrangement?
A: Shares purchased under PIS on stock exchange shall be sold on stock exchange only. Such Shares cannot be transferred by way of sale under private arrangement or by way of gift (except by NRIs to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India) to a person resident in India or outside India without prior approval of the Reserve Bank.
Q27. Can an NRI purchase securities by subscribing to public issue? What are the permissions/approvals required? How can those shares be sold?
A: Yes. The issuing company may issue shares to NRI on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission. While seeking the credit of sale proceeds to NRE/NRO account, the designated bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.
Q28. Can NRI do Intra-day transactions in cash segment?
A: No, NRI Investor has to take delivery of shares purchased and give delivery of shares sold. Short Selling is not permitted.
Q29. Can NRI trade in futures & options segment of the Exchange?
A: Yes, NRIs are allowed to invest in futures & options segment of the exchange out of Rupee funds held in India on non repatriation basis, subject to the limits prescribed by SEBI.
Q30. Can NRI trade in Currency derivative segment of the Exchange?
A: No, Only “a person resident in India” as defined in section 2(v) of FEMA Act 1999 are allowed to participate in currency derivative segment of the Exchange.
Q31. Can trading account be opened for person’s resident outside India who had been allotted shares under ESOP scheme?
A: Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. Trading account can be opened for person’s resident outside India only for the sole objective of selling of shares acquired under ESOP Scheme.
Q32. Can rights/bonus shares be issued to NRI?
A: FEMA provisions allow Indian companies to issue Rights / Bonus shares to existing non-resident shareholders, subject to adherence of sectoral cap as may be applicable.
Q33. What needs to be done by NRIs for trading in Futures & Options segment of the Exchange?
A: An NRI, who wishes to trade on the F&O segment of the exchange, is required to obtain Custodial participant (CP) code from NSE through Prabhudas Lilladher Pvt Ltd (PL). Trading members (PL) should ensure that at the time of order entry CP Code of the NRI is placed in the CP Code field of the trading system. The NRI client shall have only one clearing member at any given point of Time
Q34. What are the limits applicable to NRI in Exchange Traded Derivative Contracts?
A: Position limits would be applicable on the combined position in all derivative contracts on an underlying stock at an Exchange. Position limits for NRIs shall be same as the client level position limits specified by SEBI from time to time. • For Index based contracts - Disclosure requirement for any persons or persons acting in concert who together own 15% or more of the open interest of all derivative contracts on a particular underlying Index. • For Stock option and single stock futures contracts - The gross open position across all the derivative contracts for a security for each specific client shall not exceed higher of: 1% of the free float market capitalization (in terms of number of shares) OR 5% of the open interest in all derivative contracts in the same underlying stock (in terms of number of shares) Client level position limits security-wise, are made available to members on NSE’s website (www.nseindia.com).
Q35 How Investment positions of NRIs are monitored?
A: Reserve Bank monitors the investment position of NRIs/FIIs in listed Indian companies, reported by designated banks, on a daily basis. When the total holdings of NRIs/FIIs under the Scheme reaches the limit of 2 percent below the sectoral cap, Reserve Bank will issue a notice (caution list) to all designated branches of designated banks cautioning that any further purchases of shares of the particular Indian company will require prior approval of the Reserve Bank. Once the shareholding by NRIs/FIIs reaches the overall ceiling / sectoral cap /statutory limit, the Reserve Bank places the company in the Ban List. Once a company is placed in the Ban List, no NRI can purchase the shares of the company under the Portfolio Investment Scheme. List of caution/banned RBI scrip is available at http://www.rbi.org.in/scripts/BS_FiiUSer.aspx
Q36. In case a person who is resident in India becomes a non-resident, will he/she be required to change the status of his/her holding from Resident to Non-Resident?
A: As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non resident Indian, on a non-repatriable basis.
Q37. In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non- Resident to Resident?
A: Yes. It is the responsibility of the NRI to inform the change of status to the designated authorized dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she 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 resident account and then close the NRI demat account.
Q38. In case a non-resident Indian becomes a resident in India or vice versa, will he/she be required to open a new trading account?
A: Yes, Trading member needs to open a new trading account which needs to be uploaded with the new category code & as may be applicable.
Q39. If NRI/PIO desires to make investments under different schemes, can he hold all such securities in a single demat account?
A: No. Securities received against investments under ‘Foreign Direct Investment scheme (FDI)’, ‘Portfolio Investment scheme (PIS)’ and ‘Scheme for Investment’ on non – repatriation basis have to be credited into separate demat accounts. Investment under PIS could be on repatriation or non – repatriation basis. Investment under FDI scheme is on repatriation basis.
Q40. What happens if any NRI/PIO purchases shares, which he is not allowed to?
A: Say for example, if any NRI purchases shares of SBI, beyond the limit, which he can purchase, such fresh purchase is invalid and he would be asked to dispose of these shares immediately. Loss if any would be borne by the NRI only .
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