If you are an NRI and you are interested in investing in Indian markets then this post will help you in opening an NRI DEMAT account, I have not only done the research but I have also opened an NRI DEMAT account and today I trade using these accounts.
In this post we will look at what NRI is, the DEMAT process, how to open an account, the cost of DEMAT with different brokers as an NRI and in the end, I will also share with you the challenges that I have faced to open an NRI DEMAT account.
Who is an NRI?
An NRI/Non-resident India is a person who is staying away from India for work or migrated to a different country. Also, if a person is born to Indian origin parents outside of INDIA can also be an NRI.
In order to be considered an NRI, you should have stayed outside of India for at least 182 days in that financial year which is 1st April to 31st March.
You should be outside of India at least 365 days during the last 4 years AND at least 60 days in this year.
There are a few exceptions to this definition, for instance, If you are an employee or a crew of Indian merchant ship, in such a situation 60 days is replaced by 182 days.
How does Investing with DEMAT Account work.
So now that we know who an NRI is, I want to directly take you through the DEMAT process and then I can explain in detail the accounts involved. In order to BUY shares in NSE or BSE, first I have to transfer money from my onshore account into an NRE/NRO account. From this Account, I have to transfer money into my PIS account. PIS account is the account linked up with your DEMAT account.
Every day morning before the trade session starts, the DEMAT broker will be notified of the funds available to trade and this is reflected in my DEMAT account. When I BUY shares the amount and costs are notified to my bank and the amount is deducted from the PIS account.
Now when I decided to BUY shares worth 200,000 rupees, that amount is notified to my bank and transferred to the DEMAT broker with the final available balance.
As you can see in this whole transaction of buying shares as an NRI I have operated across 3 accounts an NRE/NRO account, PIS account, and Brokerage account. You can chose to open either an NRE or NRO account to purchase shares, you don’t need both accounts.
NRE vs NRO Accounts
So the next thing you need to understand is the difference between an NRE and NRO account.
You just have to remember that there is only two fundamental difference between NRE and NRO account, one being the source of income.
If the source of income is in India then you can only transfer the money into an NRO account.
For instance, I have a Property in India that generates monthly rent and I can only transfer that amount into my NRO account. In the future, if I sell my property then that amount can also only be transferred into the NRO account.
In case of the salary that is in dollars, I can transfer this into both NRE or NRO account.
The second primary difference is Tax component, you have to pay tax for the NRO account and you don’t have to pay any Tax for the NRE account.
For instance, if the capital in my account that is in both NRE and NRO is generating interest, then I don’t have to pay tax to the Indian Government for Interest earned in the NRE account but will have to pay tax on the NRO account.
Also there might be some confusion around repatriation of funds, that is your ability to transfer funds back to overseas account, both NRE and NRO provides the capability but with an NRO account you need to submit additional documentation for clearance.
So how does this imply when we are buying shares either in NRE or NRO Accounts?
Let’s look at the scenario of buying shares with an NRE account.
During the financial year, i.e. 1st March to 31st April, I have bought and sold some shares which have generated five lakh rupees in profit. This amount will be in your NRE account and can be repatriated back to your overseas bank. Since it is an NRE account there won’t be any tax that you have to pay to the Indian Government.
Now let’s look at the same scenario of buying shares with an NRO account.
Again during the financial year, I have bought and sold some shares which have generated five lakh rupees in profit. But the amount that you will see in your NRO account will be less than 5 lakhs, this is because the broker has to tax you at the source.
You may end up paying more Tax or get a refund based on your income, but as you observe here the primary difference is you need to pay tax to the Indian Government on the profit you have earned.
Also if you want to repatriate the amount to your overseas bank , you need to get clearance by submitting Form 15CA and Form 15 CB.
Now that you know the difference between an NRE and NRO account for your DEMAT, you can use this information to decide whether you want to invest through an NRE or an NRO account.
PIS (Portfolio Investment Scheme) ACCOUNT
The next account is the PIS account, PIS stands for Portfolio Investment Scheme, when you request your bank to open an account, the bank will submit required documentation to RBI seeking PIS letter. You can not open a PIS account without an NRE or NRO account, so the bank by default will open one account on your preference.
This is aimed to prevent you from opening multiple PIS accounts and also restricts you from investing more than 10% in a particular Company.
In the future when you decide to change your bank you first need to get a PIS discharge letter/NOC from the bank. Then only you will be able to open a new account with a different bank.
Now that we are understand what an NRE, NRO, and PIS account mean, let’s have a look at the brokers and their charges. Your DEMAT cost as an NRI is more expensive compared to a local Demat account as it includes PIS account charges apart from your normal DEMAT charges.
So when you chose your broker you need to consider both charges, the table below reflects DEMAT charges with different brokers. There are lot more brokers than what you are seeing, this is just a sample of data. I have faced a lot of difficulty in getting transparent fees and charges from different brokers, I recosmmend contacting them before you finalize your broker.
For Instance with Zerodha, it will cost you 500 rupees to open an account and 200 rupees to trade. It is the cheapest of the list below as it is a discounted broker, but you will not be able to open or trade with just Zerodha as an NRI, you need to open a PIS account with a bank. As mentioned earlier PIS bank account needs NRE or NRO account.
Zerodha supports 3 banks IndusInd, HDFC, Axis. In the past, they used to support Yes bank as well but they no longer support it.
So on top of DEMAT charges from brokers like Zerodha or Demat charges from Full-service brokers like HDFC, you also have PIS account charges as below.
From all these IndusInd looks like the best bank to open an account. I am not currently with IndusInd bank at the end, I will explain who I am DEMAT, my experience, and challenges.
At first, decide which broker you want to trade with. If your choice is a Full-Service broker like ICICI bank they will provide you better end to end service compared to discount brokers, and you pay a more for the service as well.
It is a bit different with discount brokers as the PIS account is with a bank and your DEMAT account is with them, they are little or not engaged with you until you show them PIS letter.
So if you chose a discount broker like Zerodha, I suggest starting your account opening process with a PIS bank. For instance, you can chose to open your PIS account with Axis Bank, contact Axis Bank to open a PIS account, they will open NRE/NRO account and PIS account. They will also send you the PIS letter for you.
Now take this PIS letter and approach Zerodha to open an NRI account. Zerodha will not even provide you a courier service unlike your full-service broker, all at your cost you need to send the documents to their office in Bangalore. Once they receive all your documents they will open the account and link to the PIS account.
I can tell you that the process is time-consuming but it is well worth the reward to invest.
So I have opened my DEMAT account with Zerodha and PIS account with Yesbank last year. The account opening process wasn’t smooth with both Zerodha and Yesbank. While with Zerodha I felt NRI business is something they are not keen due to the process and documentation that they have to manage even after you open an account and start DEMAT.
With yes bank the customer service was so poor and I found there was no ownership on the process itself. While I was opening my NRI accounts, Yes bank was the cheapest option available to me. Today Zerodha has stopped linking DEMAT accounts with Yes bank due to problems with Yes Bank, at least that’s what the lady on call told me. They have now replaced Ysbank with IndusInd, I am also not happy with Yesbank, considering the risk of the bank going into administration, I also wanted to move away from Yes Bank and open an account with IndusInd. And also, the transaction fees are attractive with IndusInd.
So I have decided to close my PIS account and made multiple attempts to contact YesBank, so every time I am stopped at the NRI department and they seem to have no phone number to PIS account team, and also they don’t even reply to any emails. So there I am stuck with these guys, for now, I want to chase them up seriously once the COVID clears out.
Ok so finally before I wrap up I also want to tell you the one other main reason why I chose Zerodha. It was not brokerage fees as such but they have a GTT feature, it is very important for my DEMAT, check their website if you want to know more about it and also something that you want to use as part of your DEMAT.
I will also be posting updates on what I am DEMAT in Indian markets, please subscribe and like this post for regular updates.