The unlisted stocks for NRI investors certainly remains an attractive option for wealth generation. You can now make substantial equity investments through Portfolio Investment Schemes or PIS. But are you allowed to invest in unlisted stocks as an NRI for Indian companies? The simple answer to this is YES! And we shall learn more about the guidelines right here:
Who is considered an NRI?
- NRI is a person of Indian origin living outside India. The person can be considered as an NRI if their own/spouse in laws parents, grandparents or great grand parents were Indian citizens.
- In one financial year, their stay in India should be of over 62 days but lower than 182 days. Subject to this condition, even if one has stayed in India for 365 days in the previous financial four years, you are still going to be considered an NRI.
- You can have an NRI status even if you have been deputed in a foreign country for over six months.
Process of NRI investments in unlisted equity
As per the FEMA (Foreign Exchange Management Act) rules 1999, there are mainly three ways by which NRI can invest in an unlisted company:
- When you become a promoter and/or a director of a new project/venture.
- When you become a stakeholder in a private company.
- By buying shares of a publicly limited company that hasn’t been listed yet.
Details on Unlisted Stocks for NRI investors:
Being an NRI, you can make an investments in Indian unlisted companies from the below three ways:
As the NRI is based outside India, they can assign their mandate holder for handling the administration work of NRO/NRE of the Indian Investment and bank accounts. The NRI has to provide the application of “Appointment of Mandate Holder” to the selected bank with required documents and also the specimen signature of the appointed mandate holder.
The NRI can then also appoint a POA (Power of Attorney) in India that will execute and redeem the NRI’s Indian Investments. There has to be a POA agreement signed on the notarized stamp before its submission for investment as a mandate.
NRI investment through investment management companies like Rurash Financials.
PIS scheme approval by RBI
PINS or Portfolio Investment Scheme is the approval letter by RBI to allow the NRI to open demat and trading accounts for investment activity.
Documents Needed For Opening Demat Cum Trading Account:
The following are the list of pre-requisites to open the Indian investment account.
- PAN card copy with PINS letter and FEMA declaration.
- Indian Passport, PIO card, foreign passport (if any), OCI card and TIN number
- The NRI also has to submit the address proof of the country they reside in and also a cancelled cheque of the bank account that’s overseas.
- If the NRI has both NRO and an NRE account, then they have to specify the account that will be mapped for Demat and trading.
Provisions and restrictions for NRI trading:
1. Trade Ceilings:
There are some restrictions & guidelines for NRI to invest in India.
- If the NRI holds more than 10% of an Indian listed company- he cannot have more than 10% stake in that company. The NRI has an exemption to have 20% shareholding in a company if it’s a public bank.
- The NRI can get some more relief to increase their holding upto 24% in the company. However the company’s general executive has to pass the resolution document for the NRI to hold upto 24% shareholding.
The taxation rate and structure depends on the country where the individual resides. Generally, the tax on indian income is charged at source. However, there are tax treaties and relief in some instances on a case to case basis.
3. Minimum Balance:
An NRI has to maintain the minimum balance in the account that they have linked to their trading accounts.
4. Overseas Corporate Body:
OCB is a kind of corporate body or company where the NRI’s own a minimum of 60% of the entire OCB holding.
5. Currency Derivatives:
NRI’s can’t trade in Indian currency derivatives. However Indian residents are allowed to trade in currency derivatives.
Summary: The NRI has to select a well experienced outfit like Rurash Financials to set up an Indian investment account,
Rurash Financials comes with a wide range of experience for NRI investments in India.