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I6: Stocks, Mutual Funds

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Investment Options for NRIs: Stocks and Mutual Funds

Stocks

NRIs can invest in Indian stocks under the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI) in the secondary market. Key points to note:

  • Trading: NRIs must transact through a stockbroker and cannot engage in day trading or short-selling. Trading can be done via a Demat account opened with a SEBI-approved broker.

  • Investment Limitations: An NRI can purchase up to 5% of the aggregate paid-up capital of a company, monitored by the broker or bank. There is a 10% cap on the overall paid-up capital of the company by all NRIs and OCBs, monitored by the RBI. Once this ceiling is reached, further purchases are banned.

  • Capital Gains Tax:

    • Short-Term: Held for less than 12 months, taxed at 15%.

    • Long-Term: Held for more than 12 months, taxed at 10%.

  • Dividends: Taxed at the investor’s income tax slab rates.

Mutual Funds

NRIs can invest in mutual funds, private equity funds, and use the offshore FPI route. Important details include:

  • Types of Mutual Funds:

    • Open-Ended and Closed-Ended Funds

    • Equity Funds, Debt Funds, Index Funds, Blue-Chip Stocks Funds, Mid and Small Cap Stocks Funds, Balanced Funds, Sector-Specific Funds, and ETFs

    • Investment Strategies: Aggressive, defensive, income-based, growth-oriented, etc.

  • Asset Management Company (AMC): Registered with SEBI to manage mutual funds, deciding on the portfolio of securities and strategy.

  • FATCA Compliance: NRIs from the USA need to provide additional details to comply with FATCA regulations.

  • Investment Accounts: Investments are made from NRE or NRO accounts.

  • Systematic Investment Plan (SIP): A good way to invest small amounts regularly.

  • Portfolio Management Services (PMS): Offered by brokerage firms and wealth managers with tailored investment portfolios managed by professionals.

  • Taxation of Capital Gains:

    • Equity and Hybrid Equity Funds:

      • Short-Term: Held for less than 12 months, taxed at 15%.

      • Long-Term: Held for more than 12 months, taxed at 10%.

    • Debt and Hybrid Debt Funds:

      • Short-Term: Held for less than 36 months, taxed at the investor’s income tax slab rate.

      • Long-Term: Held for more than 36 months, taxed at 20% with indexing.

This refined summary provides comprehensive insights into investment options for NRIs, including stocks and mutual funds.