NRI investments: Some FAQs
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Welcome to the NRI Club! But with this change in
status, are you allowed to continue investing in
India? Read on to know about the regulations you need
to comply with, and the opportunities open to you.
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NRIs can participate in India’s growth story.
Parvatha Vardhini C.
If you have just joined the NRI club, congratulations!
With the Indian economy booming and the country
attracting huge foreign investments, surely you would
like to be a part of the India growth story?
Till date, you may have made all your investments in
shares, mutual funds, bank deposits and other debt
instruments as a resident. Given your changed status,
are you allowed to continue investing here? Are there
any new regulations to be complied with?
Bank Accounts
One of the first things you should know as an NRI is
that your existing bank accounts are no longer valid.
The Foreign Exchange Management Act (FEMA) requires
you to inform all the banks where you have an account,
be it savings or deposits, about your changed
residential status.
The banks will then classify your account as NRO
(Non-resident Ordinary). Except for the change in
nomenclature, there is nothing new about the account.
You can continue using it as before. Payment of EMIs
(Equated Monthly Instalment) can go on. You can also
hold the NRO account jointly with a resident. But the
balance in the NRO account cannot be remitted outside
India.
If you want the funds in your account to be freely
repatriable outside India, an NRE (Non-Resident
External) account would be ideal. This account will be
maintained in rupees and any debit or credit of
foreign exchange will be converted into rupees.
It cannot be opened jointly with a resident but you
can allow a resident to operate it on your behalf.
For example, you can authorise your mother to make
local payments or even remit money to you through this
account by giving her a power of attorney.
Investment options
NRI s can invest only in five asset classes in India —
bank deposits, stocks, mutual funds, real-estate and
insurance. You can also invest in government
securities and company deposits. But you cannot invest
in PPF (Public Provident Fund), or bearer instruments
such as NSC (National Savings Certificate) or Kisan
Vikas Patras once your residential status changes.
Though you are barred from making any fresh
investments, existing ones can be left undisturbed.
However, they cannot be extended beyond maturity. You
can continue to make periodic contributions to the
existing PPF account even when you are abroad through
your NRE or NRO account. When the investments mature,
the proceeds will be credited to the NRO account.
Banks allow NRIs to invest in deposits through FCNRB
(Foreign Currency Non-Resident (Banks) accounts. These
are term deposits and can be maintained in some
currencies such as the US dollar, pound sterling and
yen. The funds in this account can be repatriated.
Equity Investments
With the stock markets on a roll, you are welcome to
join the party. As an NRI, you are allowed to invest
to your heart’s content in both stocks and mutual
funds.
While you can continue investing in IPOs (Initial
Public Offers) unmindful of your NRI status, there are
some procedures to be followed when investing in the
secondary market. All along, as a resident, you would
have used a demat account to buy and sell shares.
Now, this demat account has to be closed and the
shares are to be transferred to a new NRO Demat
Account. After this, you can either continue to hold
those shares or sell them.
Although an NRO account means that funds are
non-repatriable, the Reserve Bank of India allows
funds from the sale of financial assets to be remitted
outside India after some paperwork. Hence, wherever
you are, you can enjoy the proceeds from the sale of
shares.
To invest from abroad, you need to open a fresh NRI
PINS (Portfolio Investment Scheme) demat account. PINS
is a scheme of the RBI under which NRIs can buy and
sell shares by routing them through their NRE/NRO
account. (An NRE account is preferable, since you can
freely transfer the funds abroad after selling the
shares). Speculative transactions are not encouraged
under PINS. Hence, you need to take/give delivery of
shares.
For mutual fund investments, there are no procedural
changes. Money can either be remitted from abroad or
moved out of your NRE/FCNR accounts maintained at a
local bank.
The redemption or the dividend proceeds will be
credited to the same account. Again, investments can
be made both on a repatriable and on a non-repatriable
basis.
For these purposes, the PAN card you obtained when you
were a resident will hold good. You need not apply
afresh.
Insurance and Real-Estate
Presently, NRIs can invest in life insurance policies
in India without any limit on the cover. Some
companies offer foreign-currency denominated policies
and also allow you to pay the premium in foreign
currency.
You can also invest in residential and commercial
property in India without obtaining any special
permission from the RBI. Investment in agricultural
land/plantation property/farm house is, however, not
allowed.
We will explore NRI investments in this category in
greater detail in a future column.
The Hindu Business Line
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