Here are the basic guidelines NRIs need to know to invest in Indian STOCKS directly

Individuals from different professions now realize the long-term benefits that equity investing offers. However, if you aren’t a resident Indian it may seem like a daunting task to start investing directly in STOCKS. This is thanks to regulations around the cross-border flow of money. While there are many reports freely available on what STOCKS TO BUY and what to sell, the tougher aspect is to figure out the process and structure of such investments and the regulations that may apply. Thankfully, there are regulations that can guide you through the stipulations of investing directly.

The guidelines

Portfolio INVESTMENT scheme (PIS) is a facility notified by the Reserve Bank of India to accommodate buying Indian equities by non-residents. So if as an NRI you choose to invest directly in Indian equity, these are the guidelines which will govern your transactions

Under PIS, as an NRI, you have to open a non-resident external or a non-resident ordinary account either on repatriable or non-repatriable basis. While there are no limits on how much you can invest, there is a limit on what proportion of a stock or the company you can own. As per regulation, an NRI or a person of Indian origin (PIO) can’t own more than 10% of the paid-up capital of a private company and not more than 20% of the paid-up capital of a public sector company. The ceiling of 10% can be raised to 24% provided the general body of the company passes a resolution to that effect. This facility and the provisions within it extend to equity shares and convertible debentures and is limited to purchasing stocks and debentures via the stock exchanges.

Note that these guidelines are only applicable to direct investments in equity and not to shares you may hold via mutual FUNDS. Says Raghvendra Nath, managing director, Ladderup Wealth Management, “For mutual funds, NRIs can invest directly and don’t need to go through PIS.”

Karthik Jhaveri, founder and director, Transcend Consulting Ltd, adds, “There are many channels for investing in equity for NRIs; they can go through portfolio management service, mutual FUNDS or simply open an account with a brokerage and start TRADING.”

Where should you INVEST?

Now that the procedure is out of the way, if you are a first-time investor in STOCKS, focus on large-caps with quality businesses and stable earnings. You may sign up with a brokerage to help you execute. This is recommended only if you are already familiar with the STOCKS you want to buy and sell and are simply looking for a platform to implement the TRADE.

You can also choose to engage a portfolio management service (PMS) provider which will give you access to a customised portfolio of stocks, but this comes at an annual management fee of around 2-2.5% and there may even be a profit sharing arrangement in place. Other than that you have to be mindful of transaction costs or brokerage and only pick a PMS where the churn is low.

Then you have the option of picking equity mutual funds. Management fees are lower here, around 1-1.25%, unlike a PMS this is not a customised product and your best method of selection is based on historical performance of the fund manager.

Alternatively, you can engage a financial planner or an investment advisor to do a thorough allocation of your investible surplus and as part of that, pick stocks which suit your requirements. Nath says that very few NRIs are inclined to investing directly as buying equity stocks and managing that is not easy.