How do NRIs get started once they decide to invest in the Indian stock market? Ans: Firstly they need to open a bank account and decide whether they need to trade on a repatriable or a non repatriable basis. Now those who already have bank accounts should check with their bankers to find out whether those are suitable for stock trading. Know that you can nominate only one bank account for your stock trading. Some of the leading private banks are competent in this regard and can help you open an account through the internet that can be faster. Q2). But isn’t that cumbersome paper work?

Ans: There is definitely some amount of paper
work to be done. But if you download the application form from
the bank’s website it will be a lot faster. If you want to do
it through the internet, you would have to get copies of your
passport, may be some bank statements in original. But the advantage
with bigger banks is that all such information would be available
on the website so you would not have much of a problem.

Here’s an overview of the Indian stock market

With over 20 million shareholders India has the largest investor
base in the world after the US and Japan. Investors from all across
India invest in shares and debentures, mutual funds and securities
among other investment tools. Shares can be traded in BSE (Bombay
Stock Exchange) or the NSE (National Stock Exchange). Investors
can trade on line or over the phone through the help of an intermediary.
Indian investors can buy shares on day to day basis or use the
futures and options route. Futures and options route is a contract
that seeks assurance from an investor that he/she will trade in
a stocks at a future date. NRI’s can invest in the Indian stock
market under PIS (Portfolio Investment Scheme) which is regulated
by RBI and NRI’s are not allowed to trade in the stock market
on day to day basis. Stock market in India has been an unprecedented
boom in the past year with the Sensex recently hitting a new high
by bridging the 7500 mark. There are 23 recognised stock exchanges
in India but the most active ones are the NSE and the BSE. NSE
set up has a model exchange as a fully automated screen based
system. BSE one of the oldest in the world accounts for the largest
number of listed companies has also started a screen based trading
system with the introduction of the Bombay online trading system.
Regulations on the capital markets and the protection of investors
interest is primarily the responsibility of the Securities and
Exchange Board of India (SEBI) headquartered in Mumbai.

Q3). Kindly explain the various tools available to invest
in Indian stocks and equities, mutual funds, debentures, government
securities etc. What is the process of investment for each of
these?

Ans: To invest in mutual funds visit the respective
mutual fund website or call them up. You can send them the necessary
documents and payment can be made from the NRE or NRO bank accounts.
However, taxation might be an issue. But then the mutual fund
companies can answer your queries regarding this. For stock
trading you can trade online, by the phone or even through a
broker.

Q4). What is the difference between investments that
have a repatriation benefit and those that do not?

Ans: If an investor wants to bring in USD 10000
into India and has decided to stay back, then he can invest
that money and he won’t have to go through much paper work particularly
when it comes to taxation. Now that is non-repatriable. But
if he wants to take the principal out plus the profits then
he would need an NRE account in which case he would be allowed
to take out the principal and the profits after paying the due
taxes.

Q5). Are there any guidelines set by the RBI for NRI’s
to be followed while investing in the Indian markets?

Ans: You would have to ask your bank for Portfolio
Investment Scheme (PIS) approval. The bank may charge you a
nominal fee of around Rs 1000 to Rs 2000 and you would be allowed
to invest in the markets. Another important rule is that you
would not be allowed to day trade. Indian non-resident investors
are not allowed to speculate on a day-to-day basis in the markets.
For instance if they buy shares on Monday they would have to
wait till Wednesday to sell it. However, they would be allowed
to trade in the futures segment of the market. These are the
basic general guidelines. RBI has relaxed its rules and it is
for your bank to verify your paper work and the contract notes.
They would definitely charge you a fee for these no doubt. So
shop around and look for the best bank where you can get the
best deal.

Q6). Does an NRI have to pay extra transaction charges
for his demat account linked with an NRO account.

Ans: That would depend on the bank. So you
would need to take a look at the fine print while applying for
a bank account. Brokers state that there is no such charge but
the bank may charge extra for demat accounts with shares in
it. Now that would be mentioned in the application when you
open an account.

Q7). Is it necessary to have a broker in India even if
the NRI has a demat account?

Ans: Yes that is a must. An NRI will not be
able to execute any trade without nominating a stock broker.
There is no limit as to how many stockbrokers you need to have
but you must have a stock broker nominated in India.

Q8). Can an NRI execute trades through relatives in India?

Ans: Yes. He can give power of attorney. There
are many who do this and its also a lot easier and faster. Not
a bad idea as long as you give them the power of attorney just
to make things more faster and efficient for the client and
his family here.

Q9). How should NRIs go about investing in stocks? Do
they look for RBI designated banks and if so where can they
start?

Ans: First and foremost they will have to open
a bank account with a RBI designated bank which allows NRE,
NRI, NRO accounts and that is available with the website of
RBI or any banks they can go and check it out, on the site whether
they are designated banks or not. So they will have to open
an account there. That is step one because that is where the
money will be coming. Step two would be to open a demat account
and when I say demat account like you have a bank account for
your cash, for your assets like you have equities, debentures
or your mutual fund units you need an account where those assets
as and when you buy and make the payments will be transferred
to. So that is step two and step three would be that you will
have to open an account with a brokerage firm- a SEBI registered
brokerage firm or a SEBI registered mutual fund advisor to buy
or sell any of these products and there are designated stock
brokers in this country close to 1600 who are SEBI registered
and who are allowed to access the trading site or the trading
platform of NSE and BSE.

Q10). What about IPO’s and private placement? Do they
have to go through the SEBI registered portfolio investment
scheme and if so you could tell us a little bit about how that
works?

Ans: In case of an IPO you just need to fill
up the IPO form and give a cheque along with it for whatever
amount they want to subscribe to. For private capitals there
is an entirely different set of rules that guide them and private
equity can come into quite a few areas except plantation, agriculture,
real state development although 100% FDI has come but there
are restrictions in terms of the township that they have to
make. Those fall basically into FDI. In case of IPO’s all they
have to do is fill the form, tell the amount of money they want
to put in the shares that they are subscribing and just send
it across.

Q11). The most important concern of NRI, PRO,OCB is how
to choose an intermediary, the financial institution, the stock
broker or the bank through which they need to transact business.
Please explain.

Ans: The first and foremost criteria for anybody
choosing a bank or a broker is to see how tech savvy the banks
are since these are long distance transactions. Such ease would
enable easy transfer of funds. Besides the broker too needs
to be tech savvy. Secondly before opening an account with the
broker you need to find out their net worth, the strength of
the balance sheet of the broker. For instance if the total net
worth of a broker is Rs 1 crore and the NRI sells stocks worth
Rs 50 crore and transfer the asset, the security of your money
is doubtful. While all brokers are strictly regulated by SEBI
you must choose a broker with a strong balance sheet, strong
net worth so that your money is safe.

Q12). Any other factor that needs to be considered while
assessing the credibility of the broker?

Ans: It’s the reputation of the broker, his
balance sheet numbers that are important. Besides you can cross
check with SEBI, NSE or BSE. You may ascertain whether the broker
in question has defaulted earlier or he has had issues with
compliance.

Q13). Can you throw some light on the various charges
that need to be paid while opening all these accounts? Are there
any hidden costs, any transaction fees that one needs to watch
out for?

Ans: If you open a DP account with an Indian
address you are charged Rs 250 rupees while if it is with a
foreign address the charge is Rs 1000. No other charges as far
as the DP are concerned. But with the brokerage firm obviously
when it comes to transactions from the US you would be charged
per transaction. Typically in India today it is that the value
of the transaction. So you will have to check out with the broker.
This is pre-negotiated when you open an account and there is
a lot of flexibility depending on the size of the client transactions
besides there’s STT too. Additionally there are statutory charges
like stamp duty, a turnover tax.

Q14). How does one ensure that he gets the highest return
on his investments and how can one prevent losses?

Ans: There are three important aspects and
they are fear, greed and hope. The moment you enter into a transaction
there is a fear. After that there is greed when you say let
me wait for some more and subsequently hope and I think that
is the worst. If you’ve made a wrong decision, cut your losses
and get out. Don’t get emotionally attached to a position, to
a stock or to an investment. Don’t look for phenomenal returns.
The way the Indian markets are going they will give you the
best results. But be realistic. Don’t expect unrealistic returns.
Besides do some basic homework before you take the plunge.

Q15). What are the taxes that are levied? Also is there
a system of double taxation for NRI’s?

Ans: That depends on the country in question.
But here currently if it is a repatriable account, there’s an
STT’s levied. Its the minimum levied by the Indian government

Q16). Is there a significant advantage in investing under
repatriable?

Ans: All that depends on the individual’s choice
per se, whether he wants the money repatriated or he doesn’t.

Q17). Can NRIs, PIO, OCBs invest in government securities?
What are the restrictions?

Ans: There are no restrictions. The only issue
is repatriation, non-repatriation

Q18). There are individuals who are not even of Indian
origin but would like to invest in the Indian market. Now is
that possible?

Ans: The best way they can enter the market
is through FII Mutual funds which is registered in the U.S and
which is investing in India. Today, globally most of the advanced
markets have India specific funds. For instance Japan had come
out with India specific funds. So you never knew whether that
money is going to Brazil or Thailand or to Malaysia or India.
At present there is quite an amount of interest in Indian equities.
So most of the Mutual funds investing in Indian equity have
India Specific Funds. That way you can put in your money and
rest assured that your money is safe.

Q19). What about Over The Counter stock exchanges. How
does it work?

Ans: A.I think OTCEI is nearly defunct. It
was a great idea which came in 94 and OTCEI was the first exchange
where dematerialisation happened. There is nothing much happening
there. Today you have two options the NSE and the BSE for listed
equity, debenture and debt. There is a retail market segment
also on the NSE.

Q20). Are there any guidelines that foreign investors,
NRIs need to keep in mind in terms of RBI guidelines?

Ans: That is routine permission required when
you sell stocks. You need to give such information to RBI and
thereafter there are no hassles. Its quite relaxed compared
to the situation around nine years ago. But now the regime is
very investor friendly.

Source: South Asia World

Photo: Zero40 at Financial district, Hyderabad 04 by iMahesh, licensed under CC BY-SA 4.0, via Wikimedia Commons.