The Indian Stock Market has grown rapidly over the past few years, making it more appealing to people living in the country and those who are living elsewhere. Non-Resident Indians (NRI) are able to invest from foreign countries such as Canada as long as they follow specific rules set forth by the Foreign Exchange Management Act (FEMA).
How to Qualify as an NRI
First, to qualify as an NRI, you must be a person of Indian origin or have Indian citizenship with a valid passport and a permanent overseas address. You must also have lived outside of the country for the past 6 months or longer. If you have lived in India for 182 or more days during that financial year or have spent a total of 365 days or more throughout the preceding four years, with 60 of those days being in the current year, then you qualify as a resident and can simply invest like you normally would.
If you meet the requirements and qualify as an NRI however, you should be able to invest in the Indian stock market by using the Portfolio Investment Scheme, or PIS, through the Reserve Bank of India. This enables NRIs to acquire shares or convertible debentures by going through a bank account in a nominated branch.
NRI investments in Indian companies must be made in rupees, not CAD or any other currency. To invest, NRIs must have an NRE account, or an external rupee accounts for non-residents and need to directly debit from that account by inward remittance through typical banking channels. Money can be invested by a draft from that NRE account or a rupee cheque that is issued by an exchange house in Canada or whichever country you are living in. If you would like to pay by cheque, you will need to attach a FIRC or foreign inward remittance certificate from the bank that confirms where the funds came from with your application form.
You also have to register for a Permanent Account Number card, or PAN, if you don’t already have one. You can do this by visiting the PAN Services Unit website and entering proof of identity, date of birth, two passport-sized photos, and your permanent address. These must be mailed to the PAN Income Tax Department address that you can get from the form. The 10-digit PAN number you receive will allow you to trade Indian stocks and the tax authorities to keep track of your stock investments.
Once that is all done, you have the option to appoint a mandate holder, which is a person who can locally manage your NRE bank account and your NRI investments. To do this, you must fill out an appointment of mandate holder form from your bank and submit KYC documents with the form. The mandate holder must also sign the form for it to be accepted. Once the papers are registered, that person can issue cheques, use ATM cards, make payments, and deposits in your place.
If you want to allow that person to have more abilities, you can make them a power of attorney. They are able to do all of the things a mandate holder can in addition to making and redeeming investments and filing paperwork on your behalf. If you would prefer to be in control of your investments yourself instead of appointing someone who is local to manage your FDI and NRI investments in the Indian stock market, you can elect to trade yourself through online trading portals. There are a number of online trading portals for different brokers available. You just need an account with the broker you wish to trade with to register online.
If you elect to go the route of a mandate holder you are able to set limits on the amount that they can debit from your account. If you choose to trade through online portals however, keep in mind the time change may be difficult. You have to be able to trade during business hours in India, which is 9.5 hours if you live in Toronto for example. This means you may be doing a lot of your trading in the middle of the night, which can interfere with your sleep schedule if you work during the day. Also factor in the fees that banks will impose for these special accounts, converting your currency and handling trades. You want to be sure you have the funds to invest before trying to go down this route, as it can be a little expensive to break into.