Investing in the Indian share market is not only for those staying within the country’s dominion. Non-resident Indians (NRIs) can also do so with the help of specialised demat accounts provided by some banks. However, there are some rules and regulations set forth by the Reserve Bank of India (RBI) that all NRIs need to follow to successfully maintain an investment portfolio back home in India. One such regulation is the Portfolio Investment Scheme. Let’s break this down to understand what it is and how NRIs looking to invest in Indian companies can benefit from it.
Understanding portfolio investment for NRIs
Indians residing in India can easily gain access to investment instruments like equities, exchange-traded funds (ETFs), mutual funds, index funds, and many more. For NRIs, the RBI has some specific rules to do the same and maintain compliance with foreign exchange laws.
The Portfolio Investment Scheme (or PIS account) enables NRIs to seamlessly invest in Indian securities using a repatriation and non-repatriation basis. In this scheme, each and every transaction is monitored by the RBI to ensure transparency and compliance.
What is a PIS?
This scheme is essentially an NRI demat account that serves as a channel through which NRIs can invest in the Indian stock market. The main role of this type of account is to ensure there is continuous oversight of these cross-border transactions. These accounts are managed dedicatedly by any particular bank as per the NRI investor’s preference. Hence, for security and compliance purposes, only one such account can be allotted to one NRI.
Many prominent banks have the facility of such accounts that allow investors to simplify their investments in India. These accounts also allow NRIs to track every transaction smoothly.
Role of an NRI Demat Account
Now the actual demat account of an NRI exists within the Portfolio Investment Scheme. This demat account is almost similar to that of a resident Indian. There is just one difference. It is strictly monitored by the RBI. This is done to ensure that this demat account meets all the guidelines and regulations of the Foreign Exchange Management Act (FEMA). This account can be used by NRIs in two ways.
The demat account under the PIS account scheme can be either a repatriable or a non-repatriable one. A repatriable account, is called an NRE account. This account enables NRIs to take their funds abroad with them. Whereas a non-repatriable account, is called an NRO account. This account is for NRIs who are earning income in India.
The demat account holds your securities electronically, while the linked bank account handles the flow of funds. Together, they enable seamless participation in Indian equity markets.
How PIS and demat accounts work together
A PIS and demat account for NRIs work hand-in-glove. To understand this practically, imagine you place an order to buy an equity fund in either the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) as an NRI. When you do this, your funds will be debited from the bank account that is linked to your PIS account. Simultaneously, the shares purchased will be credited to your demat account.
In the same way, if you sell an equity share holding from your demat account, those specific numbers of shares get debited from your demat account. The proceeds from the sale of these shares then get credited back into your PIS-linked bank account.
Final thoughts
The links between a demat account for NRIs and the Portfolio Investment Scheme are very close and for good reason. The entire process of debiting and crediting shares and their proceeds to and from the PIS and demat accounts may seem unnecessarily complex and time consuming. However, it is necessary to ensure that shares from the Indian stock market are being traded fairly across borders while staying within the RBI investment limits. This ultimately benefits NRI share traders.
