Many Indians travel abroad, usually for study or work. When they settle in those countries and become Non-Resident Indians or NRIs, they often send the money they earn back to their loved ones in India. They may even choose to invest in the Indian stock market. There are several shares they could trade in, including, but not limited to, NRI mutual funds, equity, bonds, Fixed Deposits, and so on.
However, NRIs are required to open a special type of Demat account, called an NRO Demat account, to trade in Indian stocks from outside the country. As you may know, all Demat accounts are used to store shares in an electronic, ‘dematerialised’ form. For NRIs, these accounts may be connected to their regular non-resident savings accounts, known as Non-Resident Ordinary or NRO accounts.
NRIs also require special permission from the RBI, in the form of Portfolio Investment Scheme (PIS) approval, to trade in Indian stocks. This permission can be obtained via any bank or brokerage with which you can open a Demat account. These rules are per the guidelines laid out by the Foreign Exchange Management Act or FEMA.
How To Open NRO Demat Account?
The procedure to open an NRO Demat account in India is fairly simple. All you need to do is fill out an application form and provide a list of documents requested by the bank or brokerage you are opening your account with.
These documents usually include Indian and overseas address proof, visa copy, PAN card copy, PIS approval form, copy of passport (Indian or otherwise), passport size photograph, etc. You need to provide proof of identity, proof of address, and proof of bank, along with the filled-out account opening form and an updated KYC.
This process can be done either offline or online. For the offline version, the NRI needs to be in India and physically visit the bank or brokerage firm and talk to the Delivery Participant (DP). For the online version, this same conversation is made online with a representative that manages online applications.
Additionally, remember that you need to convert existing bank accounts into non-resident versions before you leave the country for this process to be easier. You can convert them into non-resident ordinary (NRO), or non-resident external (NRE) accounts. Doing so also helps avoid later confusion with PAN numbers, tax treatments, and so on.
The Difference Between NRE and NRO Demat Accounts
Like their regular savings accounts, NRIs also have the option to open two Demat accounts: an NRE Demat account and an NRO Demat account. The difference between NRE and NRO Demat accounts lies in whether the money can be taken abroad or not.
An NRE account allows the NRI to invest foreign money into the Indian market and take any money earned back into another market. Thus, NRE accounts are called repatriable accounts. An NRO Demat account, on the other hand, does not allow the NRI to take funds from the Indian market back abroad. Moreover, whatever money in an NRO account would have been earned in India.
Therefore, NRO Demat accounts are usually the non-resident versions of any domestic Demat account held before leaving the country and are called non-repatriable accounts.
What Are NRO Demat Account Charges?
There are mainly three types of NRO Demat account charges that NRIs have to pay. They include:
- Account opening charges
- Annual maintenance charges (AMC)
- Goods and service tax (GST)
The first two vary across banks and brokerages. The charges for opening the account vary between INR 300 and INR 4000, while the AMCs vary between INR 75 and INR 500. Additionally, the GST is levied at 18%.
The Benefits Of Having An NRO Account In India
There are many advantages to having an NRO account in India, including:
- It makes investing in the Indian stock market much easier as the transactions and documentation work is reduced drastically.
- With NRO accounts, transactions are efficient and faster and are immediately shown in the Demat account.
- It reduces the risk of delayed delivery, forgery, the need for physical documentation, etc.
- NRO Demat accounts have easily met minimum capacities, as low as one share.
- You can easily expand your portfolio in an NRO Demat account with ETFs, shares, mutual funds, etc.
Conclusion
NRIs need to research and choose the type of Demat account to open based on their unique needs and wants. NRE Demat accounts allow a person to repatriate the interest and the principal and offer a tax exemption on the interest earned. NRO Demat accounts don’t allow one to repatriate, but the money earned can be easily reinvested in the Indian market.
Once either type of account is opened, the investor can easily invest in any sector in the Indian stock market except for chit funds, agriculture, print media, real estate (except real estate development), transferable development rights, and plantation. Lastly, the sale of longer-held shares is tax-exempt, while shares held for less than a year are not.