NRI’s Guide to Choosing the Right Account Type for Investing in Indian Stocks

But first, what is a Portfolio Investment Scheme? It is an arrangement introduced by the Reserve Bank of India to allow NRIs to invest in shares of Indian companies and allows both repatriation and non-repatriation of profits. But there are differences between PIS and non-PIS accounts that you need to consider before deciding on one.

PIS versus non-PIS

A PIS account linked to non-resident external accounts (NRE) may be the right choice if your priority is to repatriate your earnings and funds to your home country. However, the process of opening a PIS account is complex. As Amit Lalan, director of online trading platform Upstox, explains, PIS accounts require permission from both a bank and the RBI, which can make the onboarding process time-consuming – typically around two weeks.

Additionally, PIS accounts carry higher operational and compliance costs due to the regulatory oversight involved. PIS accounts are also subject to RBI restrictions on the maximum foreign or NRI shareholding allowed in a company. For example, if HDFC Bank has reached the maximum foreign shareholding limit, no further purchases of PIS shares by NRIs will be permitted. Restrictions on futures and options trading also apply.

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On the other hand, a non-PIS account offers a simpler and more flexible approach to investing in Indian securities. Unlike PIS accounts, non-PIS accounts can be opened directly with a broker without requiring permission from the RBI, making the onboarding process quicker and easier, Lalan said.

(Please note that both PIS and non-PIS demat accounts do not allow intraday trading.)

Non-PIS accounts are linked to NRO accounts (Non-Resident Ordinary Accounts), which have restrictions on repatriation. This means that while you have more freedom to manage your investments (for example, to engage in intraday trading and other forms of active market participation), your ability to transfer funds back to your home country is limited.

Dipen Shah, certified financial planner and co-founder of NRI FinOne, suggests that NRIs who prioritise repatriation of their money could opt for PIS accounts, while non-PIS accounts are more suitable for those who prioritise flexibility in their investment strategy over ease of repatriation.

As per RBI norms, NRIs can transfer up to $1 million per year from their NRO savings account to their NRE savings account. To facilitate this transfer, you need a signed cheque or a letter requesting the transfer, a Foreign Exchange Management Act (FEMA) declaration and proof of the source of funds.

Additionally, you will need to obtain Form 15CB from a certified public accountant and generate Form 15CA through the income tax website to ensure regulatory compliance and verify the legitimacy of the transfer.

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How to get started

Opening a PIS account

To open a PIS account, NRIs need to follow several detailed steps. First, they need to obtain permission from a bank to invest in Indian securities. The bank will help them obtain the necessary PIS permission from the RBI. This process usually takes about two weeks.

Once you have obtained the permit, you will need to provide specific documentation to open the PIS account with the broker. This includes a foreign ID, proof of legal address from your home country, and a certification from a local lawyer. These documents must be physically presented to the bank with the necessary certifications.

The next step is to link the PIS account to the NRE account, which makes it easier to repatriate profits and funds to your home country. Once you have created the PIS and NRE accounts, you can begin your investment adventure.

Opening a non-PIS account

An NRI can directly open a non-PIS account with a broker without having to go through a bank or the RBI for permissions. This makes the onboarding process simpler and more straightforward. But a non-PIS account is normally linked to an NRO account, which has restrictions on repatriation of funds.

To carry out F&O transactions through a non-PIS account, an NRI needs to register with a custodian participant with the help of a broker. The custodian participant will handle the clearing and settlement of the trades.

So which one should you choose?

If you are transitioning from being a resident to an NRI, here’s how you can approach managing your investments. For example, if you have worked in India for several years and are now moving abroad, converting your resident demat account to a non-PIS account could help you manage your existing investments more efficiently.

On the other hand, for your new earnings abroad, opening a PIS account will give you the flexibility to repatriate funds to your home country without any hassle.

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By using a non-PIS account to manage past investments and a PIS account for future gains, you can align your investment strategy with your financial needs and repatriation goals. This method ensures that both investment management and fund transfers are optimized as your situation evolves.

That said, the onboarding process for both PIS and non-PIS accounts poses challenges for NRIs, according to Upstox’s Lalan. The process is generally more cumbersome than for resident accounts, as it involves several complex and tedious steps. While non-PIS accounts can be opened directly with a broker, the onboarding process is still not as user-friendly as it could be for resident accounts.

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