How to invest in the Indian Stock Market as an NRI?

HOW TO INVEST IN THE INDIAN STOCK MARKET AS AN NRI?

One of the major problems faced by NRIs is related to the confusion on how they can invest in the Indian Stock Market.

Today, I am going to provide all the essential details regarding how you can invest in the Indian stock market as an NRI.

Before getting to the actual details, I will focus on some general information regarding NRIs.

Without any delay, let us start our topic for today, i.e., regarding the process of investing in the Indian stock market as an NRI.

If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

Who is an NRI?

NRI stands for Non-Resident Indian, which refers to an Indian citizen who lives outside of India for a certain period of time.

To be specific, an individual is considered an NRI if they have lived outside of India for 183 days or more in a financial year (April-March).

In other circumstances, they would be considered an NRI when they leave India for employment, business, or any other purpose.

Such a purpose (mentioned above) should indicate an intention to stay outside of India for an indefinite period of time.

NRIs typically hold an Indian passport and may have family members or other ties to India.

At the same time, they may also hold citizenship or permanent residency status in the country where they currently reside.

Taxes for NRIs in India

NRIs, i.e., Non-Resident Indians, are required to pay taxes in India on any income earned or received in India.

The tax laws for NRIs in India are governed by the Income Tax Act, 1961, and the rules and regulations framed thereunder.

Based on the information obtained from the internet, the taxes for NRIs in India depends on the following factors:

Residential Status

As per the Income Tax Act, an individual’s residential status determines their tax liability.

An NRI is taxed only on income earned or received in India, which includes the sources located in India.

If an NRI’s income is earned or received outside India, they are not liable to pay tax in India.

Income

The nature of income earned by an NRI in India determines the tax liability of such an individual.

Some of the common sources of income for NRIs in India include:
— Rental income
— Interest on bank deposits
— Capital gains from property sales
— Income from business or profession

Double taxation

India has signed Double Taxation Avoidance Agreements (DTAAs) with many countries to avoid double taxation of income.

If an NRI’s country of residence has a DTAA with India, they may be able to claim relief from double taxation.

If not, they are subject to double taxation, which might eat away a significant amount of the money they earn.

Tax rates

The tax rates for NRIs in India are the same as those for resident Indians, which you might not have expected.

The tax rates for the financial year 2021-22 are as follows:
— Up to INR 2.5 lakh: Nil
— INR 2.5 lakh to INR 5 lakh: 5%
— INR 5 lakh to INR 10 lakh: 20%
— Above INR 10 lakh: 30%

Note that the tax rates regarding the income slabs will change from the year 2023-2024, and these rates are based on the stats before that.

I am not including the new tax rates as they are going to come into effect from April 1, 2023, and this article has been written before that.

NRIs can file their income tax returns online through the Income Tax Department’s e-filing portal.

NRIs should consult a tax expert or a Chartered Accountant in India for guidance on their tax liability and compliance requirements.

This is highly advised because taxes can be extremely complex and without proper guidance, people tend to make mistakes.

Therefore, it is of uttermost importance to rake advice from a tax expert before filing your taxes as an NRI.

NRO Account

To open an NRO account as an NRI, you can follow the steps that have been listed below.

Choose a bank

You can choose a bank that offers NRO accounts. Most banks in India offer NRO accounts for NRIs.

Gather the required documents

You will need to provide the following documents to open an NRO account:
— A copy of your passport/visa/overseas address proof
— A recent passport-sized photograph
— A PAN card copy
— A copy of your NRI status proof (such as a work permit, employment contract, etc.)
— A local reference address in India
— A minimum initial deposit, which varies from bank to bank

Visit the bank

Once you have gathered the required documents, visit the bank branch in person to open the account.

Fill out the application form

Fill out the NRO account opening application form with all the necessary details and attach the required documents.

Submit the application

Submit the completed application form along with the necessary documents to the bank, which would go through the process of approval.

Complete the KYC process

The bank will verify your identity and address with the help of the KYC (Know Your Customer) process. This may include an in-person verification or an online verification through a video call.

Activate the account

Once the account is approved, you will receive your account details and the account will be activated. You can start using your NRO account for transactions.

It is important to note that funds in an NRO account cannot be freely repatriated outside India.

Therefore, before making any investments or transactions, it is advisable to consult with a financial advisor and understand the tax implications of your actions.

NRE Account

To open an NRE (Non-Resident External) account, an NRI (Non-Resident Indian) needs to follow these steps:

Choose a bank

Select a bank that offers NRE account services. Most major banks in India offer NRE account facilities, and you can choose the one that best suits your needs.

Collect the required documents

— You need to submit the following documents to open an NRE account:
— A valid passport with a visa stamp or resident permit as proof of your NRI status.
— Overseas address proof such as driving license, electricity bill, or bank statement.
— A recent passport-sized photograph

Fill out the application form

Fill out the NRE account opening form with accurate details and attach the necessary documents.

Submit the application form

You can submit the application form and documents online or in person at the bank branch in India or their international branch office.

Fund the account

You can fund the NRE account using foreign currency, and the bank will convert it into Indian rupees.

Activate the account

Once the account is opened, you will receive a confirmation from the bank. To activate the account, you need to transfer an initial deposit amount.

Opening an NRE account is a relatively simple process and can be completed in a few steps.

It is important to note that an NRE account is meant for holding foreign earnings in India, and the interest earned on this account is tax-free.

Investing in the Indian Stock Market as an NRI

Having known about the NRE and NRO accounts, let us now have a look at the process of investing in the Indian stock market as an NRI.

An NRI (Non-Resident Indian) can invest in the Indian stock market by following these steps:

Open an NRE/NRO account

NRIs must have either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account to invest in the Indian stock market.

NRE accounts are used to repatriate foreign earnings to India and are tax-free, while NRO accounts are used for income earned in India and are subject to taxes.

Obtain a PAN card

NRIs need a PAN (Permanent Account Number) card to invest in the Indian stock market. They can apply for a PAN card online or through the Indian embassy in their country of residence.

Choose a broker

NRIs can choose from various brokers registered with the Securities and Exchange Board of India (SEBI) to invest in the Indian stock market.

They can choose from full-service or discount brokers depending on their needs.

Complete the KYC process

NRIs need to complete the KYC (Know Your Customer) process by submitting:
— Identity proof
— Address proof
— Bank statements
— Other required documents

Invest in stocks

Once the KYC process is complete, NRIs can invest in stocks listed on the Indian stock exchanges (NSE or BSE) through their broker’s online trading platform.

They can also invest in mutual funds, exchange-traded funds (ETFs), and other investment instruments.

It is important for NRIs to keep track of any changes in Indian laws or regulations regarding foreign investments and to consult with a tax advisor before making any investment decisions.

Indian Stock Market Investment Tips for NRIs:

Here are some tips for investing in the Indian stock market as an NRI, which prove to be extremely helpful.

Understand the regulations

Make sure you are aware of the regulations and restrictions on NRI investments in India.

Familiarize yourself with the Foreign Exchange Management Act (FEMA), the Reserve Bank of India (RBI) guidelines, and other relevant regulations.

Choose a broker

Choose a broker who is authorized to facilitate NRI investments in India. Do your research and find a reputable broker with a good track record of serving NRIs.

Open the right type of account

Open an NRE or NRO account, depending on your needs.

An NRE account is best for repatriable income and non-repatriable income can be invested through an NRO account.

Choose the right investment avenue

There are several investment avenues in the Indian stock market, such as equities, mutual funds, and exchange-traded funds (ETFs).

Choose the right avenue based on your investment goals, risk tolerance, and investment horizon.

Diversify your portfolio

Diversification is extremely helpful for you to manage risk in any investment portfolio.

Spread your investments across different sectors and companies to reduce your exposure to any one company or sector.

Keep track of exchange rates

Exchange rates can impact your investments as well as your earnings from the Indian stock market.

Keep an eye on the exchange rate and make sure you are aware of the impact of currency fluctuations on your investments.

Stay updated

Stay updated on the latest news and developments in the Indian stock market to make more profits from potential opportunities.

Read financial news and research reports, and stay informed about the performance of the companies and sectors in which you have invested.

Consult a financial advisor

If you are unsure about how to invest in the Indian stock market as an NRI, seek the advice of a financial advisor.

A professional can help you create a customized investment plan based on your goals, risk tolerance, and investment horizon.

Best Indian Stockbrokers for NRIs

Given below is a list of some of the top stockbrokers in India that offer specialized services to NRIs.

Zerodha

It is the largest and most popular stockbroker in India and offers a user-friendly platform, low brokerage fees, and a wide range of investment options.

ICICI Direct

It is a well-known name in the Indian stock market, and it offers a wide range of investment options to NRIs.

HDFC Securities

It is a subsidiary of HDFC Bank and is known for its advanced trading platform, research tools, and customer service.

Kotak Securities

It is a subsidiary of Kotak Mahindra Bank and is known for its innovative investment products and services.

Sharekhan

It is a popular online brokerage firm in India that offers a range of investment options and has a strong customer support team.

Before choosing a stockbroker as an NRI, it’s important to research their fees, customer service, and trading platforms.

It’s also important to check if the stockbroker is authorized by SEBI (Securities and Exchange Board of India) to offer services to NRIs.

Other Investment Options for NRIs in India

As an NRI, you have a range of investment options in India apart from the Indian stock market.

Some of the best investment options for NRIs in India (other than stocks) are provided below.

Fixed Deposits

Fixed Deposits or Term Deposits are low-risk investment options that provide guaranteed returns.

NRIs can invest in Fixed Deposits with Indian banks, and the interest earned is subject to TDS (Tax Deducted at Source).

Mutual Funds

Mutual Funds are a popular investment option among NRIs and residents alike, given their profitable nature.

Mutual Fund houses in India offer a variety of schemes catering to different risk profiles and investment objectives.

NRIs can invest in Mutual Funds in India through the NRE/NRO account.

National Pension Scheme (NPS)

The National Pension Scheme is a long-term investment option that offers tax benefits and regular income after retirement.

NRIs can open an NPS account and contribute to it until retirement, which is an advantageous method of saving toward retirement.

Real Estate

Real Estate is a popular investment option in India, and NRIs can invest in residential or commercial properties in India.

Real Estate investments provide rental income and capital appreciation, and of course, you should be on the lookout for the tax implications.

Exchange-Traded Funds (ETFs)

Exchange-Traded Funds are a passive investment option that tracks the performance of an index.

NRIs can invest in ETFs listed on Indian stock exchanges just like they can invest in Indian stocks.

Initial Public Offerings (IPOs)

NRIs can invest in Initial Public Offerings (IPOs) of Indian companies through the NRE/NRO account.

Investing in IPOs requires a good understanding of the company’s business and financials.

Bonds

Indian government bonds and corporate bonds are low-risk investment option that provides fixed returns.

NRIs can invest in bonds through the NRE/NRO account and the account opening process of these accounts was mentioned earlier.

It is important to note that NRIs must comply with the rules and regulations of the RBI and the FEMA while investing in India.

It is always beneficial and I too recommend you consult a financial advisor before making any investment-related decisions.

General Investment Tips for NRIs

Investing is an essential part of wealth creation, and it is vital to invest smartly to get the best returns.

As an NRI, investing in India can be an excellent way to diversify your portfolio and take advantage of the growing economy.

Given below are some essential investment tips for NRIs, which are helpful while investing in the Indian markets.

Understand the Tax Implications

As an NRI, you must understand the tax implications of investing in India so that you avoid tax-related issues.

The tax rules for NRIs are different for resident Indians, and you need to know how your investments will be taxed in India and your country of residence.

It is essential to consult a tax expert to understand the tax implications and plan your investments accordingly.

Choose the Right Investment Option

There are several investment options available to NRIs in India, such as fixed deposits, mutual funds, equities, and real estate.

Each investment option has its risks and returns, and you must choose the one that best suits your financial goals and risk tolerance.

It is of paramount importance to research and compares different investment options before deciding on a specific investment.

Invest in Mutual Funds

Mutual funds are an excellent investment option for NRIs who want to access the Indian markets.

They provide diversification, professional management, and flexibility for NRI investors.

NRIs can invest in mutual funds in India by opening an NRE or NRO account and there are various options for accessing Indian mutual funds.

It is crucial to read the scheme information document (SID) and understand the fund’s investment strategy, fees, and risks before investing.

Consider Real Estate Investments

Investing in real estate in India can be a lucrative option for NRIs as the Indian real estate market is a profitable endeavor.

The real estate market in India is growing, and the demand for residential and commercial properties is increasing.

NRIs can invest in real estate through direct purchases, joint ventures, or real estate funds.

It is essential to do proper due diligence and research before investing in real estate as an NRI.

Plan for Retirement

NRIs must plan for their retirement, and investing in a retirement fund is an excellent way to do so.

The National Pension System (NPS) is a government-backed retirement savings scheme that is available to NRIs.

It provides tax benefits and flexible investment options, and alternatively, NRIs can invest in mutual funds or fixed deposits to save for their retirement.

Invest in Blue Chip Companies

Investing in blue-chip companies can provide steady returns over the long term (which applies to any country in the world).

Blue-chip companies are well-established, financially sound, and have a proven track record.

NRIs can invest in blue-chip companies by buying stocks or mutual funds that invest in these companies.

It is essential to research and choose companies that have a solid financial position and growth potential.

Pay attention to Currency Fluctuations

Currency fluctuations can impact the returns on your investments and eat up a significant amount of your profits.

As an NRI, you must keep an eye on the currency exchange rates and plan your investments accordingly.

You can also consider investing in currency futures or options to hedge against currency risks.

Diversify Your Portfolio

Diversification is key to managing investment risk and NRIs must diversify their portfolio across different asset classes, sectors, and geographies.

It is essential to avoid putting all your eggs in one basket and spread your investments across different investment options.

Avoid High-Risk Investments

NRIs must avoid high-risk investments, such as penny stocks, small-cap companies, CFDs, etc.

These investments can be volatile and can result in significant losses, which defeat the purpose of making money through investments.

It is essential to invest in companies or funds that have a proven track record and are financially stable.

Get Professional Advice

Investing can be complicated, and it is crucial to seek professional advice before making any investment decisions.

NRIs can consult financial advisors or investment managers who specialize in NRI investments.

They can provide guidance on investment options, tax implications, and risk management.

Overseas Investments

Investing overseas can provide a range of advantages for non-resident Indians (NRIs).

Let us have a look at some of the major benefits of investing overseas as an NRI.

Diversification

One of the primary advantages of investing overseas is the opportunity for diversification.

Investing in overseas markets can provide exposure to different sectors and industries.

This also provides exposure to currencies and geopolitical factors that may not exist in the domestic market.

This can help to reduce the risk of portfolio concentration and increase the chances of achieving a better overall return.

Access to new markets

Investing overseas can also provide access to new and emerging markets that may offer higher potential returns than the domestic market.

This is particularly relevant for NRIs who may have more knowledge of and connections to emerging markets in their home country or region.

Currency exposure

Investing overseas can also provide exposure to different currencies, which can be useful for NRIs.

This is particularly advantageous for individuals who may have income and expenses in different currencies.

This can help to mitigate the risk of currency fluctuations and provide opportunities for currency gains.

Portfolio optimization

Investing overseas can also be useful for portfolio optimization for NRI investors.

By allocating a portion of the portfolio to overseas investments, NRIs can potentially achieve a better balance of risk and return.

This can also help to reduce the overall risk of the portfolio and enhance its performance over the long term.

Tax advantages

Investing overseas can also provide tax advantages for NRIs and some countries offer favorable tax treatment for overseas investments.

An example of such tax benefits includes reduced or eliminated withholding taxes on dividends or capital gains.

This can help to increase the overall return on investment and reduce the tax burden for NRIs.

Political and economic stability

Investing overseas can also provide exposure to political and economic stability in other countries.

This can be particularly relevant for NRIs who may have concerns about political or economic instability in their home country.

Investing in overseas markets with stable political and economic conditions can provide a haven for investments.

 This helps in mitigating the risk of volatility in the domestic market and offers economic security.

Socially responsible investing

Investing overseas can also provide opportunities for socially responsible investing for NRIs.

Many countries and companies around the world are focused on social responsibility and sustainability.

These countries or companies can provide opportunities for NRIs to invest in companies that align with their values and beliefs.

Finally, investing overseas can provide a range of advantages for NRIs, including what I mentioned above.

However, it is important for NRIs to carefully research and consider their investment options and the potential risks/benefits.

They should also consult with a financial advisor or tax expert who has experience working with NRIs to help them make informed investment decisions.

Bottom Line

I strongly hope that the information provided in this article was helpful to you in understanding the stock market investment procedure for NRIs.

If you require the assistance of a finance specialist for your investment requirements, you’ve arrived at the correct location.

My expertise lies in providing wealth management solutions to affluent individuals and expatriates in several nations.

If you are interested in determining whether my outstanding investment services are appropriate for you, please do not hesitate to get in touch with me.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.