Trading in Indian Stock Markets
In first part of this article article Investing in Indian Stock Market for NRIs/OCIs, we discussed opening a bank account and deciding whether you need to trade on a repatriable or a non repatriable basis. You can open any type of the accounts above but what is important is that to have an account with a good bank, open an account with a good stock broker and be comfortable that their funds are safe and that all trades would be executed fairly and transparently.
Opening an account can appear cumbersome but if you download the application form from the bank's website it will be a lot faster. If you want to do it through the internet, you would have to get copies of your passport, may be some bank statements in original. But the advantage with bigger banks is that all such information would be available on the website so you would not have much of a problem.
See help on choosing an NRI Bank Account
So that was step one, in step two you would need to open a demat account. As bank account was there to hold your funds demat account is to hold your assets like you have equities, debentures or your mutual fund units you need an account where those assets as and when you buy and make the payments will be transferred to.
Demat account allows you to buy, sell and transact shares without the endless paperwork and delays. It is also safe, secure and convenient. Demat refers to a dematerialised account. So it is just like a bank account where actual money is replaced by shares.
The demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.
You can also have your bank account which also works as your demat account. Check with the banker that the account is suitable for stock trading. Also remember that you can nominate only one bank account for your stock trading. Some of the leading private banks are competent in this regard and can help you open an account through the internet that can be faster.
So that’s done you have a bank account and a demat account. But wait you need another account called brokerage account. . An NRI will not be able to execute any trade without nominating a stock broker. There is no limit as to how many stockbrokers you need to have but you must have a stock broker nominated in India. Brokerage is the place where you actually place you trades. These accounts allow you to purchase stocks, bonds, mutual funds, and other investments by paying professionals to buy or sell the items you tell them to. The fee you pay them is their commission, and can vary from broker to broker. The price difference arises when you choose between either a discount or traditional broker. Traditional brokerages provide a wider range of services, and have the price tag to match. They serve along the lines of professional money managers and can offer advice as to what investments might be right for you. Discount brokers are companies that tailor to the more self-directed investor; they don't offer advice as to what to put your money into, leaving you to make your own financial decisions and charging you much less than their traditional counterparts.
But again there are banks which can provide you all in one service. They can act as your bank as well as demat account and over it they can also act as your broker. It is up to you to go for convenience and get one of these all in one accounts or go for specialized accounts.
Before choosing a financial institution the first and foremost criteria for anybody should be to see how tech savvy the banks are since these are long distance transactions. Online access for most of transactions should be preferable. Such ease would enable easy transfer of funds. Secondly before opening an account with the broker you need to find out their net worth, the strength of the balance sheet of the broker. For instance if the total net worth of a broker is Rs 5 crore and the NRI sells stocks worth Rs 50 crore and transfer the asset, the security of your money is doubtful. While all brokers are strictly regulated by SEBI you must choose a broker with a strong balance sheet, strong net worth so that your money is safe.