Why NRIs Need to Open NRO Demat Account?

Why Do NRIs Need NRO Demat Accounts?

The Government of India has put forward many different securities that people who are living outside of India (Non-Resident Indians or NRIs) will be able to buy. These securities include all different types of investments, such as stocks (or shares), bonds, mutual funds, and fixed deposits.

NRIs must open an NRO Demat account in India to buy stocks from abroad. This account holds their Indian income, like rent or dividends and allows them to invest in the Indian stock market. A Demat account is a record of the investor(s) who own the stock and is in electronic format.

In addition to opening a Demat account, NRIs must also have permission from the Portfolio Investment Scheme (PIS) from the RBI that allows them to trade in equity on the stock exchanges in India. Permission to use PIS is required for trading in equity, and it is a key component of the regulatory scheme established by FEMA.

How to Open an NRO Demat Account?

The process of opening an NRO Demat account is straightforward and can be completed either online or offline.

• Proof of Indian/Overseas Address

• Visa

• Copy of PAN Card

• PIS Approval Form

• Copy of Passport (Indian or Foreign)

• Two Passport-size photographs.

• Proof of Identity/Address and Updated KYC

• Proof of Local Bank Account

To complete the application through the offline channel, the NRI investor has to be physically present to meet the Depository Participant (DP) in India. When applying online, the NRI will work with a Representative who will guide them through the onboarding process remotely.

When an NRI leaves for overseas, it’s best to convert all of their Indian resident bank accounts to NRO/NRE Accounts before departure, as this will help make KYC, Tax & Regulatory Compliance easier later on.

NRE vs NRO Demat Accounts

NRIs can choose between two types of Demat accounts: NRE and NRO.

The key distinction lies in whether earnings can be transferred abroad (NRE) or must stay within India (NRO).

Charges Associated With NRO Demat Accounts

To keep an NRO Demat account, NRIs are expected to pay 3 primary charges:

The charges for maintaining an NRO Demat account are different among banks and brokerage firms.

Key Benefits of an NRO Demat Account

Benefits of opened NRO Demat accounts include:

• Simplified investing in Indian markets with reduced documentation hurdles

• Faster and more efficient transactions, with real-time reflection in the Demat account

• Lower risk of forgery, delayed delivery, and physical paperwork

• Low minimum investment size, starting with just a single share

• Easy investing in shares, mutual funds, ETFs, and other instruments

The above advantages provide additional support for NRO Demat accounts for NRIs who have more income sourced from India and who also have other investments within India.

Investment Limits and Restrictions

Once an NRE or NRO Demat account has been established, the option for an NRI to invest in several industries on the Indian stock exchange is available. However, there are industry restrictions that would apply to these investments:

• Chit funds

• Agriculture

• Plantation

• Real estate (other than development projects)

• Print media

• Transferable development rights

Capital gains tax based on investment period: capital gains from equity after 12 months will not be taxed; therefore, short-term capital gains will be taxable.