Understanding The Portfolio Investment Scheme: A Guide

The Portfolio Investment Scheme (PIS) is a scheme by the Reserve Bank of India (RBI) that allows Non-Resident Indians (NRIs) and Overseas Citizens of India (OCBs) to invest in Indian stocks and bonds. The scheme enables NRIs to purchase and sell shares and convertible debentures of Indian companies on a recognised stock exchange by routing transactions through their NRI Savings Account with a designated bank branch. Investments can be made on a repatriation or non-repatriation basis, with separate accounts required for each. The PIS offers NRIs a hassle-free way to invest in the Indian stock market, providing flexibility, low-cost transactions, and tax benefits.

Non-Resident Indians (NRIs) can invest in Indian stocks and bonds

There are two types of accounts that can be used for portfolio investment:

• NRE (Non-Resident External) Rupee account for foreign inward remittances from an overseas account. This account allows for the repatriation of funds.
• NRO (Non-Resident Ordinary) account for remittances from overseas accounts or local resources. This account does not allow for the repatriation of funds.

NRIs can choose to invest under either a repatriation or non-repatriation basis. For investments under the repatriation channel, a separate NRE PIS account is required, which is exclusively for stock market operations. For non-repatriation investments, an NRO account is used, and there is no need to open a separate account for PIS transactions.

It is important to note that there are regulatory limits to the investments that can be made by NRIs. The RBI has set a ceiling on the number of particular shares in an NRI's portfolio investment, which is monitored daily. For example, for investments under repatriation, the investment limit is up to 5% of the total paid-up capital of a company. The aggregate investments by all NRIs in a specific share should not exceed 10% of the paid-up capital, which can be raised to 24% with a special resolution passed by the RBI.

Additionally, there are certain restrictions on investments for NRIs. They cannot invest in companies engaged in chit funds, agricultural or plantation activities, real estate business related to agriculture or farmland, or construction of farmhouses, among others. NRIs are also not permitted to engage in intraday trading or short selling of shares and can only trade on a delivery basis.

To open a PIS account, NRIs must provide the following documents:

• Copy of passport, visa and PAN card
• Proof of address abroad (driving licence, utility bill, residence permit, credit card bills, rent receipt, bank statement, etc.)
• Self-attested copies of documents attested by the Indian Embassy, Notary Public or Bank Manager

NRIs can also invest in Indian stocks and bonds through intermediaries such as mandate holders, power of attorney, or brokerage firms. However, it is important to follow the guidelines specified by regulators like the RBI and ensure compliance with the Foreign Exchange Management Act (FEMA).

Transactions are routed through an NRI Savings Account

The Portfolio Investment Scheme (PIS) is a scheme by the Reserve Bank of India (RBI) that enables Non-Resident Indians (NRIs) to invest in Indian stocks and bonds. Transactions under the PIS are routed through an NRI Savings Account with a designated bank branch. This means that to invest in Indian shares and convertible debentures, NRIs must use a savings account specifically for NRIs, which is set up with a bank authorised by the RBI to handle such transactions.

NRIs can choose to invest under a repatriation or non-repatriation basis. For investments under the repatriation channel, an NRE (Non-Resident External) Rupee account is required for foreign inward remittances from an overseas account. For portfolio investment on a non-repatriation basis, an NRO (Non-Resident Ordinary) account is needed for remittances from overseas accounts or local sources.

The NRI Savings Account used for PIS transactions must be set up with only one designated bank. This means that NRIs can only use one bank for their PIS transactions. The designated bank will issue daily statements of transactions to the NRIs.

It is important to note that NRIs are not allowed to engage in intraday trading or short selling of shares. They must take delivery of the shares and give delivery of the shares when buying or selling, respectively.

Investments can be made on a repatriation or non-repatriation basis

The Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) that enables Non-Resident Indians (NRIs) to purchase and sell shares and convertible debentures of Indian companies on a recognised stock exchange.

Investments on a repatriation basis

For investments on a repatriation basis, NRIs must open a separate Non-Resident External (NRE) Savings Bank (SB) PIS account. This is done by remitting funds from an overseas/NRE/FCNR account. The NRE account is maintained in Indian Rupees and is ideal for NRIs who want to maintain savings in India from earnings abroad, with the flexibility of moving funds back to their country of residence. The NRE account can be a savings, current, fixed, or recurring deposit account. The funds deposited, including the principal and interest earned, are fully repatriable.

Investments on a non-repatriation basis

For investments on a non-repatriation basis, NRIs must open a separate Non-Resident Ordinary (NRO) SB account. This is done by remitting funds from an overseas/NRE/FCNR account or local sources. The NRO account is specifically designed to hold these funds and is denominated in Indian Rupees. It allows partial repatriation, with a limit of up to USD 1 million per financial year for any bonafide purpose.

Comparison of repatriation and non-repatriation investments

Repatriation allows for the transfer of funds back to the investor's home country, while non-repatriation means the funds must remain in India. Understanding these concepts is crucial for NRIs looking to invest in India, as it defines the financial flexibility they have with their funds and investments in the country.

There are restrictions on the number of shares in a portfolio investment

The Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) that enables Non-Resident Indians (NRIs) and Overseas Citizens of India (OCBs) to purchase and sell shares and convertible debentures of Indian companies on a recognised stock exchange. Transactions are routed through an NRI Savings Account with a designated bank branch.

These restrictions are in place to limit the risk exposure of NRIs and OCBs investing in Indian companies through the PIS. By diversifying their portfolio and not investing too much in any one company, investors can reduce their exposure to unsystematic risk, which is the risk associated with a particular company or industry.

While there is no consensus on the ideal number of stocks to hold in a portfolio, it is generally agreed that investors should diversify by choosing stocks in multiple sectors while keeping a healthy percentage of their money in fixed-income instruments, such as bonds or other fixed-income investments. This will serve as a hedge against stock market downturns and provide a balance between risk and safety.

Additionally, NRIs are only allowed to have one designated bank to channel the transactions under the PIS, and they are not permitted to carry out any intraday trading or short selling of shares. These restrictions further limit the number of shares that can be included in an NRI's portfolio investment.

NRIs can invest in futures or options traded on an exchange

The Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) that enables Non-Resident Indians (NRIs) to invest in Indian stocks and bonds through recognised stock exchanges.

NRIs can also invest in futures or options through a Non-Resident Ordinary (NRO) Savings PIS account on a non-repatriation basis.

To trade in futures and options, NRIs must appoint a custodian and obtain a Custodian Participant (CP) code.

Frequently asked questions