Tips for NRI Investors: 8 Things You Must Know Before Investing In Indian Stocks

The Indian stock market has been rising continuously for the last few months. It is the right time to grow your money by leaps and bounds. However, Indian stocks are slightly different and more complicated to handle for Non-Resident Indians (NRIs) than native people.

Therefore, to help you start your investment journey, we connected with Shavir Bansal, a finance content creator who runs a page, Bekifaayati on Instagram. He shared a list of things that NRIs must keep in mind before investing in the Indian

1. Convert Existing Bank Account Into An NRE/NRO Account

Bansal suggested that as soon as a person becomes an NRI, they should convert their Indian bank account into an NRE or NRO account. You will also need to update the KYC details of your trading or Demat account. It is better if you convert your INR Demat account into NRE/NRO Demat account. This should happen within 30 days of changing your status from Indian resident to an NRI or the Reserve Bank of India (RBI) can penalise you.

2. Open An Account For Investing Purposes

To manage your Portfolio Investment Scheme (PIS) accounts, our finance expert suggested NRIs open an NRE or NRO account in a bank authorised by the RBI. “PIS accounts allow NRIs to invest in shares and convertible debentures of Indian companies,” he added.

The advantage of an NRE account is it allows NRIs to repatriate their funds back to their home country, in this case, India. The PIS account will also ensure that your transactions are effortless and in compliance with the RBI.

3. Products To Invest In

Bansal said that, unlike Indians, NRIs cannot invest in any sector they wish to. There is a list of guidelines by the RBI stating the sectors in which NRIs cannot invest. They are also prohibited from participating in products like Currency Derivative, Commodities, and Intraday Trading.

NRIs can only invest in delivery-based products. Our expert added that the RBI put up these restrictions to protect the economy of the country and ensure that NRIs invest responsibly. He added that the list of banned sectors is subject to change, and it is available on the official website.

4. Avoid ‘Popular’ Stocks

Bansal advised avoiding ‘popular’ stock in ‘hot’ industries. You should focus on identifying good companies among flashy ones. He added, “The stock market is influenced by people's sentiments and stocks that are excessively hyped

and frequently discussed in the media can impact public expectations and decisions.”

It can often lead to unrealistic expectations, and these stocks are often susceptible to market volatility. Thus, they come under the risk category. He added that boring stock can give you good results over a long period.

5. Check Financial Ratio Before Investing

Among many financial ratios, you should check:

• Debt to Equity Ratio
• Price to Earnings Ratio (P/E)
• Return on Capital Employed (ROCE)

The finance expert also added that you should check Free Cash Flow which represents the cash earned from core business operations after investing in fixed assets. If cash flow is higher, the company is performing better.

You should also check Quality of Earning, where you will see the source of the majority of income for the company. If the income is coming from core operations, it is a green signal. You can verify this by checking the ‘Other Income’ section in financial statements. If it is bigger than income from core operations, it is a red flag.

6. Tax Regulations

The tax on capital gains from equity shares in India depends on the time of holding. If you sold them before 12 months, they are called Short-Term Capital Gains (STCG) and are taxed at 15%.

If you sell shares after a year, they are termed Long-Term Capital Gains (LTCG). They are taxed at 10% if the profit amount exceeds ₹1 lakh in the financial year. But NRIs will have to pay tax (Investment Regulations For NRIs In India) depending on the country they are residing in and its tax laws.

Bansal added that NRIs must know that India has Double Tax Avoidance Agreements (DTAAs) with at least 88 countries in the world, including Canada and the United States of America. These agreements ensure that you are not taxed on the same income twice.

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7. Seek Professional Advice

The finance content creator said that it is a common mistake among many investors in India as well as abroad to take financial advice from people in the family. They should seek professional advice to maximise their capital gain, achieve their future goals, and minimise risk factors.

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8. Always Diversify Your Portfolio

Bansal also suggested that NRIs must work towards diversifying theirinvestment portfolio instead of putting all eggs in one basket. A well-diversified portfolio will emphasise quality over quantity. It can also help to reduce risks and prevent potential losses.

He added, “It only takes a handful of big winners to make your investing journey worthwhile.”

Stay tuned to HerZindagi for financial advice.