Investing in Indian Stock Markets
Indian stock market Overview
Indian stock market is quite mature. In fact India has the largest investor base in the world after the US and Japan. Investors can invest in shares, debentures, mutual funds and securities among other investment tools.
Shares are traded in BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange). Trading can be done online or over the phone through the help of an intermediary. NRI's can invest in the Indian stock market under PIS (Portfolio Investment Scheme) which is regulated by RBI but NRI's are not allowed day trading that is to buy and sell a stock on the same day. In addition to above two main stock exchanges India have 21 recognised stock exchanges but the most active ones are the NSE and the BSE. NSE set up has a model exchange as a fully automated screen based system. BSE one of the oldest in the world accounts for the largest number of listed companies has also started a screen based trading system with the introduction of the Bombay online trading system. Regulations on the capital markets and the protection of investors interest is primarily the responsibility of the Securities and Exchange Board of India (SEBI) headquartered in Mumbai.
Other alternative is to invest in Mutual Funds focussed on India
How NRIs can invest in Indian stock markets
With rapidly growing economy Indian Stock Markets are booming as well. Although Indian stock market is highly regulated, preventing most non-Indians from investing in it but NRIs are in a special situation and can take advantage of booming Inidan stock market. Below it is outlined what non-resident Indians (NRIs) need to invest in the Indian stock market.
Open a bank Account
First step in investing in Indian Stock Markets is to get a Bank Account. This will off course be there to hold your funds that you need to invest. As you are outside India your funds will be in foreign currency. So next question arising is whether you want your funds to be held in foreign currency or in Indian Rupees. In banking terms whether you want your account to be repatriable or non repatriable. So let’s first understand these terms and various types of NRI bank accounts.
NRI Bank Accounts
In simple terms repatriable means the balance held in the account in India can be taken out of India while on the other hand balance in non-repatriable account can not be taken outside India. Rupee account can be:
NRE (Non resident External Rupee Account).
NRE account is repatriable account that is money can be transferred back to foreign country. NRE Account can be Current / Savings / Term Deposit account. Funds are held in convertible Indian rupees. Minimum balance requirement for Current Account is Rs 10,000, Rs 5,000 for Savings Account and Rs 10,000 for Term deposit accounts. Accounts can be funded through remittances in any convertible currencies from abroad, which will be converted at ruling exchange rates into Indian rupees or transfers from existing NRE/FCNR accounts / deposits or foreign exchange brought into India during visits to India. A joint account can also be opened by two or more individuals, provided all of them are NRIs. In case of an account in the name of a minor, both the minor and the guardian should be NRIs. Entire balance, including interest earned thereon, can be converted into any convertible currency at ruling exchange rates and repatriated abroad. Interest on term deposit can be paid periodically or compounded. Balance in the NRE accounts is exempt from Wealth Tax. Entire interest income from a NRE account is exempt from Income Tax under the provisions of Income Tax Act in India.
Also see property Investment in India.
NRO (Non Resident Ordinary Rupee Account)
Account to be maintained in local currency that is Rupees. NRIs who have local income or expenses in India can open NRO Account. The Account can be Savings, Current or Fixed Deposit Account. Local incomes like rent, dividend, or interest can be credited to this account. Interest earned on this account is not exempt from Income Tax under the provisions of Income Tax Act. Although interest earned is repatriable subject to RBI guidelines. Joint Account with Residents or Non Residents can be opened. Minimum balance requirement for current Account is Rs 10,000, for savings Account is Rs 5,000 and for Term Deposits is Rs 10,000.
Foreign Currency Account can be:
FCNR (An account under the Foreign Currency Non Resident Account Bank Scheme)
This type of account is to be maintained in foreign currencies. Fixed deposit accounts maintained only in US Dollars, Sterling Pounds, Japanese Yen and Euro. The deposits can be accepted for a minimum period of 12 months and upto 36 months. Minimum deposit amount is USD 1,000 or equivalent. Deposit can be made by remittances from abroad or by transfer of funds from NRE accounts or by depositing foreign exchange while on visit to India. Interest payments would be at half yearly. All other benefits available at NRE deposits are also available to FCNR deposit.
See help on choosing an NRI Bank Account
So that was step one, in step two we will discuss the demat account and the brokerage account that we need to open to invest in Indian stocks. You can read the article here - Trading in Indian Stocks - Brokerage Accounts