Can an NRI invest in Indian stocks and mutual funds through an NRE account? Here's what you need to know

Can an NRI invest in Indian stocks and mutual funds through an NRE account? Here's what you need to know

New Delhi, Aug. 14 -- Many non-resident Indians (NRIs) continue to invest in Indian equities and mutual funds to maintain exposure to the country's relatively diversified market, with representation across FMCG, information technology, automobiles, oil and gas, financial services and pharmaceuticals.

NRIs and overseas citizens of India (OCIs) are allowed to invest in Indian securities, though the process comes with additional documentation, account requirements and regulatory restrictions that resident investors do not face.

Mutual fund asset management companies in India cannot accept investments in foreign currency. The same rule applies for stock trading, meaning if you are residing outside India, you cannot directly invest in the country's stock market.However, you can still get exposure to these Indian securities by routing your investments through an NRE or NRO account. To do so, NRIs need to approach designated branches of any authorised bank such as ICICI Bank, HDFC Bank, SBI Bank, among others who have permission from the Reserve Bank of India (RBI) to administer such account opening requests.

Apart from an NRE or NRO bank account, an NRI investor also needs a demat account and a trading account. Those who wish to invest in shares on a repatriation basis through Indian stock exchanges must also obtain a Portfolio Investment Scheme (PIS) permission from an authorised dealer bank, which issues the approval on behalf of the central bank.

Indian laws, specifically the Foreign Exchange Management Act (FEMA), do not allow you to park your money in a regular resident savings account in India once you have achieved the NRI status. This law makes it compulsory for an NRI to use either an NRE and NRO account to hold money in the country. Here's the difference between the two:

The choice between an NRE and an NRO account is an important one for NRIs as investments made through an NRE account allow full repatriation of both the invested capital and the income earned from it. In contrast, an NRO account carry certain limits on repatriation.

Unlike resident investors, NRIs are not allowed to do intraday trading in Indian equity shares. All equity transactions must be delivery-based, meaning you take the delivery of the shares in your demat account and hold them for more than one day. Short selling is also off limits.

While intraday trading is prohibited for NRIs, they can trade in futures and options (F&O), given that they follow the prescribed rules such as having an NRO Non-PIS trading account. F&O trading through NRE Non-PIS trading account is not allowed as per Indian laws.

Mutual funds offer a relatively simpler investment route for NRIs and OCIs. After completing the required KYC formalities, they can invest in mutual funds on both repatriable and non-repatriable bases. They can invest directly with asset management companies or through distributors. Published by HT Digital Content Services with permission from MINT. For any query with respect to this article or any other content requirement, please contact Editor at contentservices@htdigital.in