NRIs are permitted to invest in stocks and bonds of companies listed on stock exchanges in India on either a repatriable or non-repatriable basis.

Investment on repatriation basis means the proceeds from the sale of securities and profits from investments can be transferred outside India and NRIs have to open a non-resident external (NRE) savings account with a banking institution approved by the Reserve Bank of India (RBI).

On the other hand, investment on non-repatriable basis means the proceeds realised from sale of securities and profits from sale of investments cannot be repatriated outside India and instead be deposited in Non Resident Ordinary (NRO) account, to be invested in India.

Different categories of investors can invest funds in the Indian capital markets. Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS).

Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

Based on the applicable regulations, the ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per cent for NRIs/PIOs.

The limit is 20 per cent of the paid up capital in the case of public sector banks, including the State Bank of India. The ceiling of 24 per cent for FII investment and 10 per cent ceiling for NRIs / PIOs can be raised subject to approval of the Board and / or General Body of the company, as per the applicable regulations.

It is noteworthy to mention that the ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.

The equity shares and convertible debentures of the companies within the prescribed ceilings are available for purchase under PIS subject to: the total purchase of all NRIs/PIOs both, on repatriation and non- repatriation basis, being within an overall ceiling limit of (a) 24 per cent of the company’s total paid up equity capital and (b) 24 per cent of the total paid up value of each series of convertible debenture; and the investment made on repatriation basis by any single NRI/PIO in the equity shares and convertible debentures not exceeding five per cent of the paid up equity capital of the company or five per cent of the total paid up value of each series of convertible debentures issued by the company.

The RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the bank has fixed cut-off points that are two percentage points lower than the actual ceilings.

Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-off point, which is 2% below the overall limit, the central bank cautions all designated bank branches not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without prior approval of the bank.

On reaching the aggregate ceiling limit, the RBI advises all designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients. The RBI also informs the general public about the `caution’ and the `stop purchase’ in these companies through a press release.

As an NRI, you may wish to invest funds in Indian stocks after opening an Non-Resident External (NRE) account with a bank approved by the RBI for routing funds and then set up NRI Trading Account under a Portfolio Investment Scheme (PIS) with a regulated platform approved by the RBI for investing in Indian stocks.

Also note that NRIs cannot engage in intra-day trading of stocks but trade only on delivery basis, taking delivery of these stocks into their Demat account.

In light of the above, you may invest funds in Indian stocks through Indian stock exchange(s) keeping in view the above referred restrictions and regulations. Needless to add that gains arising from sale of investments will be subject to applicable taxes.

–  CA Dhaval Jasani is the founder and CEO of  ZTI, a boutique advisory firm based in Dubai. He has experience handling assignments across geographies, including but not limited to East Africa, Central Africa, South Africa, West Africa, Europe, UAE and India. He has led fundraising, forensic accounting, arbitration, due diligence, mergers, acquisitions, structures, compliance and techno-economic feasibility studies in his more than two-decade old career.