How to get a demat account for NRIs
Have your investment habits changed since you moved abroad? Many non-resident Indians (NRIs) wish to continue investing in the Indian stock market, but don’t know how to go about it. The fact is, despite not being Indian residents, they can put money into mutual fund units or trade securities in the stock market. However, in order to get started, they would need to have a demat account.
The Securities and Exchange Board of India (SEBI), the regulatory authority for the securities market, has made it mandatory for stock market traders to hold a demat account. This rule also applies to NRIs who wish to invest in Indian equities. Only, the NRI may not be able to continue using the demat account they held while resident in India. Instead, they will have to apply for a special demat account for NRI investors.
Unsure about where to start? To help you out, here is a guide to getting a demat account for NRI individuals.
Who qualifies to be an NRI?
To qualify as an NRI, you have to fulfil the following criteria:
- You are an Indian citizen.
- You reside in India for less than 182 days during the financial year.
- You live abroad to pursue business or employment or some other such purpose.
- Your stay abroad may be for an uncertain or indefinite span of time.
Why you need a demat account
Since SEBI has ruled that physical share certificates can no longer be traded, anyone who wishes to invest in the stock market needs to get a demat account. This is because a demat account dematerialises securities and holds them in electronic form. Even if you currently hold physical share certificates, you will need to get them dematerialised before selling or transferring them.
Benefits of holding a demat account
A demat account comes with several advantages for you. Here is a look at some of them:
- Demat accounts make the process of trading in shares safer and more efficient. Transactions are secure and transfers happen quickly.
- You can hold more than just shares in your demat accounts. That includes exchange-traded funds, government securities, mutual fund units, and more.
- With a demat account, you can track and view all your security holdings in one place. This makes monitoring your investments much simpler.
Demat account for NRI investors
As you begin the process to open a demat account for NRI individuals, keep in mind the rules and regulations specified under the Foreign Exchange Management Act (FEMA). Here’s what you need to know:
- Closure of regular demat account: If you already have a demat account for a resident Indian, this will be terminated. Any shares held within it will have to be transferred to a Non-Resident Ordinary (NRO) demat account. Should you sell any of these shares, the proceeds will be credited to your NRO account.
- Investment in initial public offerings (IPOs): You can invest in IPOs through Non-Resident External (NRE) demat and savings accounts. Note that this investment is on a repatriable basis, which means you can send the money back to India. For non-repatriable investments, you must use NRO demat and savings accounts.
- Get a Portfolio Investment Scheme (PINS) account: Through this account, NRIs can trade shares or buy mutual funds in the Indian market.
- Restrictions on NRI investment: The Reserve Bank of India (RBI) has imposed a restriction on NRI investment in the Indian securities market. NRIs are limited to investments of up to 5% of an Indian company’s paid-up capital.
Documentation for opening a demat account for NRI investors
Several documents are necessary to open a demat account for NRI individuals. Here is a comprehensive list of the paperwork requirements:
- Demat account for NRI investors application form, duly filled
- Copy of passport
- Copy of PAN card
- Copy of Visa
- Overseas address proof, such as rental or lease agreements, sales deeds, or utility bills
- Passport-sized photograph
- FEMA declaration
- A cancelled cheque leaf of NRE or NRO account
Keep in mind that all the above documents have to be attested at the Indian embassy in the NRI’s current country of residence.
Thanks to dematerialisation, transactions happen in real-time and transfers reflect in your demat account quickly. Charges are lower, paperwork is minimised, and you can hold as little as a single share. You could even open a demat account for NRI investors that combines a savings account, a demat account, and a trading account in one neat package with a broker like Kotak Securities. Once you have a demat account and other NRI accounts in place, you can participate in the Indian share market with complete ease. Since all trades and investments take place online, you can log in from just about everywhere and start investing.