For NRIs planning to invest funds in Indian stocks and mutual funds, understanding regulatory requirements is the need of the hour. Most NRIs can start their investment journey by choosing to Open Demat Account facility linked to either NRE or NRO accounts, as resident accounts are not allowed once the NRI status is acquired. The Indian regulatory system demands that NRIs have separate NRI trading and Demat accounts to comply with FEMA regulations and report foreign transactions accurately.
A Demat account for NRI differs from a resident Demat account because it has to be linked to particular banking systems and can be processed either through the Portfolio Investment Scheme (PIS) route or the non-PIS route. The difference between these routes affects the repatriation process, taxes, and reporting requirements. It is important to understand this difference before embarking on Indian equities, IPOs, or mutual fund investments.
Understanding the NRI Investment Structure in India
After acquiring NRI status, you cannot use resident savings or Demat accounts.
There are two primary types of bank accounts that facilitate NRI investments:
- NRE (Non-Resident External) Account – For foreign earnings and fully repatriable funds
- NRO (Non-Resident Ordinary) Account – For earnings in India with restricted repatriation
The NRO account balance can be repatriated to the extent of USD 1 million per year, subject to documentation, tax due, and filing requirements.
What is a PIS Account?
The Portfolio Investment Scheme (PIS) is an RBI-controlled mechanism that allows NRIs to buy and sell listed Indian stocks using specified bank accounts. All equity transactions made under the PIS are required to be reported to the RBI.
The primary characteristics of a PIS account are:
- Mainly used for secondary market equity investments
- Requires RBI approval and bank assistance
- All transactions are tracked and reported to the RBI
- Often involves higher costs
PIS accounts can be maintained under either the NRE or NRO account type, depending on the repatriation requirements. However, PIS accounts may also involve certain restrictions, such as restrictions on investing in specific stocks if the NRI investment limit is attained.
What is a Non-PIS Account?
Non-PIS accounts offer you a more flexible route for investing. They are typically offered in conjunction with NRO accounts and do not require RBI approval or daily reporting.
The main advantages of Non-PIS accounts are:
- No need to report to RBI
- Simplified documentation
- Lower costs compared to PIS
- Suitable for IPO investments, mutual funds, and non-repatriable equity investments
Please note: Repatriation of funds from Non-PIS investments is more difficult and limited compared to repatriation of NRE PIS investments.
PIS vs Non-PIS: Which One is Best for You?
PIS accounts are best suited for:
- Making repatriable equity investments
- Frequent trading of Indian-listed stocks
- Transactions that require RBI monitoring
Non-PIS accounts are best suited for:
- IPO investments and mutual funds
- Simplified compliance procedures
- Investments sourced from India
Most contemporary brokers promote Non-PIS accounts as easier and less restrictive for long-term investors.
Common NRI Errors
- Holding resident demat accounts after becoming an NRI
- Confusing repatriable and non-repatriable investments
- Believing PIS is required for all types of investments
- Overlooking documentation requirements for fund transfers
In reality, investors face challenges in understanding PIS approvals, bank coordination, and document verification, emphasising the need for early selection of the right account type.
How to Select the Right Account Route?
Whether to choose PIS or Non-PIS depends on:
- Investment period
- Repatriation requirements
- Trading frequency
- Cost considerations
- Comfort level with compliance
For example, long-term mutual fund and IPO investors may find Non-PIS more suitable, while equity traders who trade frequently and require flexibility in repatriation may consider PIS accounts.
Conclusion
India remains an attractive investment destination for NRIs, but regulatory clarity is essential before starting. PIS accounts offer structured, RBI-reported investment routes, while Non-PIS accounts provide flexibility and simplicity. The right choice depends on repatriation needs, investment type, and compliance comfort. Proper structuring ensures smooth investing and avoids regulatory complications later.
1. Is PIS compulsory for NRIs to invest in Indian stocks?
Not necessarily. PIS is essentially required for specific secondary market equity transactions, but IPOs, mutual funds, and other investments can be made through Non-PIS channels.
2. Can NRIs remit funds from their NRO investments?
Yes, but normally up to USD 1 million per annum, after fulfilling tax dues and other formalities.
3. Can NRIs trade in intraday or derivatives segments through these accounts?
Not really. For example, PIS accounts do not facilitate intraday trading or short sales, and derivatives trading may involve special arrangements.
