How to open a demat account for NRIs in India: A step-by-step guide

If you are a Non-Resident Indian (NRI) and you want to invest in Indian securities, namely equity shares, bonds, or mutual funds, you can do so through a demat account. With increasing confidence in the Indian economy and stock markets continually attracting foreign investments, you might want to participate in the capital markets of India. But the approach is entirely different than for a resident Indian, particularly with the associated complexities of FEMA (Foreign Exchange Management Act) and compliance issues that NRIs have to deal with.

Understanding the NRI demat account structure

It is important for you to know that NRI investments in Indian securities are regulated by the Reserve Bank of India (RBI) and SEBI. As a result, as an NRI, you cannot maintain a normal resident demat account. You will need to set up one of the following:

1. NRE Demat Account (Non-Resident External) – Must be used for investments in the equity markets with funds that are then repatriated in your overseas account.

2. NRO Demat Account (Non-Resident Ordinary) – This is used when investments are made with your Indian earnings - for example, rental, dividends, pension, etc. The funds of these accounts are non-repatriable or have some restrictions on repatriation.

Depending on your investment goals – whether you wish to repatriate profits or keep them in India – you can choose one or both account types.

Step-by-step guide to opening a demat account as an NRI

Step 1: Choose a depository participant (DP)

A depository participant (DP) acts as your intermediary with either NSDL or CDSL—the two main depositories in India. You must select a DP that offers NRI-specific services and supports both NRE and NRO demat accounts.

Step 2: Open an NRE/NRO bank account

To proceed, you need either an NRE or NRO account. These accounts are your financial route for transactions in India. If you are looking to invest money earned in a foreign country, then an NRE account is the right account. If you are investing in your Indian income, then you need to set yourself up with an NRO account.

Documents required

• Passport copy
  
• Visa/work permit
  
• Overseas address proof (like utility bills)
  
• PAN card
  
• Recent passport-size photographs
  

Step 3: Obtain Portfolio Investment Scheme (PIS) permission

This is a critical step unique to NRIs. The PIS is a regulatory requirement by the RBI that allows NRIs to invest in Indian stock markets on a repatriation or non-repatriation basis. You need to apply for PIS through your bank. The bank will then coordinate with the RBI and issue you a PIS letter.

Step 4: Fill out the demat account opening form

After opening the bank account and getting the PIS permission, you can proceed with the actual application process for the demat account. Most DPs allow you to complete this process online these days, although NRIs may still need to send in notarised physical copies depending on their jurisdiction.

Commonly required documents

• PAN card (mandatory)
  
• Passport copy (with attested visa/residence permit)
  
• Overseas and Indian address proofs
  
• NRE/NRO bank account details
  
• PIS permission letter
  
• Passport-size photos
  
• FEMA declaration
  
• FATCA declaration (in case of U.S.-based NRIs)
  

Step 5: In-Person Verification (IPV)

IPV is often a mandatory step to verify your identity and prevent fraud. You might be asked to present yourself in person at a designated branch, or you may be allowed to complete IPV via video conferencing or by submitting documents attested by an Indian Embassy or notary public.

Some DPs also accept documents attested by a court magistrate, a judge, or any local authority permitted by Indian laws.

Step 6: Link trading account

While a demat account only holds your securities in electronic format, a trading account is required to buy or sell shares on stock exchanges. Kotak Neo offers a 3-in-1 account (bank + trading + Demat), which simplifies the process and makes fund transfers seamless.

Step 7: Fund your account and start investing

Once you activate your account, you will need to transfer funds, and you're ready to invest. Remember, all your transactions like purchases, sales, dividends, capital gains must go back and forth from the linked bank account, in order for you to meet the requirement of FEMA.

What can you invest in through your NRI demat account?

NRIs can invest in:

• Equity shares listed on BSE and NSE
• Equity and debt mutual funds
• Non-convertible debentures (NCDs)
• IPOs and FPOs
• Exchange-Traded Funds (ETFs)

However, NRIs cannot engage in

• Intraday trading in equities
• Investment in certain restricted sectors under RBI guidelines
• Derivative trading, subject to certain conditions

Conclusion

Although opening a demat account in India as an NRI isn't as easy as for resident Indians, it is well worth it in the long run. You will gain access to one of the most dynamic stock markets in the world and the advantage of participating in India's high-growth sectors and wealth creation potential. It is also much easier to onboard now that digital KYC and video verification are acceptable options.

Read More:

How to Open a Demat Account?
What is Demat Account?