If you are a Indian citizens who have become a non resident under FEMA or are a Persons of Indian Origin and want to invest in shares and convertible debentures through stock exchanges, the RBI has framed a special scheme for you. This is called PIS (Portfolio Investment Scheme). Let us understand what are the terms and conditions for making investments under PIS.
Opening of a bank account with designated branch
For buying and selling shares and convertible debentures of Indian Companies you need to have a bank account with a designated branch of a bank. The investments can be made either on repatriation basis of on non repatriation basis. For making investments with a right to remit the sale proceeds outside India on repatriation basis you need to open an NRE PIS (Non Resident External Account) and for making investments on non repatriation basis you have to open a NRO PIS (Non Resident Ordinary) account. These bank accounts can only be used for the limited purposes of effecting financial transaction of buying and selling of shares. The amounts which can be credited in an NRE PIS account are generally same as which are allowed for your regular NRE account. You are allowed to apply for IPO from these bank accounts either on repatriation basis of on repatriation basis depending on which bank account has been used for making the application. The transaction under this scheme can only be undertaken through a registered share broker. The designated branch is to be kept informed about all the transaction under this scheme.
At a given point of time, you are allowed to have only one NRE PIS and one NRO PIS account for the purpose of buying and selling shares/convertible bonds through stock exchanges, however you are allowed to change your authorised branch under this scheme after complying with procedure prescribed.
Limits on investments
Though there is no limit up to which you can make investment under PIS but Under PIS you are allowed to purchase and hold only up to 5% of capital of an Individual Indian company in case of shares and in case of convertible debentures you are allowed to invest only up to 5% of each series of the debentures in aggregate under repatriation and non repatriation basis taken together. . However the total of investments by all the NRI taken together can not exceed 10% of the respective values. The individual limit has to be ensured by the individual NRI investor but the cap of 10% has to be monitored by the Company Concerned. The Company may by special resolution, passed by its members, can raise the limit of 10% to 24% without the permission of RBI. For exceeding this limit the Company has to seek permission of the RBI.
Restrictions on transfers etc.
The shares/debentures purchased under PIS can only be sold through only through a registered broker on Indian stock exchange and can not be sold under a private deal for which you will need approval from RBI. Though the investments made under PIS can not be gifted or otherwise transferred without RBI approval, no such permission is required in case you want to gift such investments to you close as defined under the provisions of company law.
Certain other restrictions on transaction which can be entered into under PIS
Under PIS you are allowed to invest only on delivery basis and are not allowed to square up the transaction. So short selling in not allowed to NRI under this scheme. However you are allowed to carry out the transaction under future and options but that too only on non repatriation basis. Likewise you are also not allowed to enter into any derivative transactions in currency segment. You are not allowed to pledge the securities bought under this scheme.
Change of status
When you come back to India for good and thus become a resident under FEMA, you need not sell these securities as you are allowed to retain these investments made under PIS. However you will have to intimate your designated branch about change of your status and accordingly the bank will re-designate your existing NRE PIS and NRO PIS accounts a regular bank accounts. You also will have to open a new Demat account as resident and all the securities held under the demat account opened under PIS will have to be transferred to the new account. Please note that once you become a resident under FEMA though you can retain these investments made under PIS but you are not allowed to remit the money outside India. However as a resident Indian you can remit up to $ 2.5 lakhs under the liberalised remittance scheme every year.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)