NRIs (Non-Resident Indians) and Foreign Portfolio Investors (FPIs) can participate in Indian securities markets, including equity and derivatives, but they must follow specific SEBI rules and RBI guidelines.
Below is an overview of the key compliance requirements:
A. Compliance Requirements for NRIs
1. Accounting Requirements
NRIs must open the following accounts to tradein India:
- NRE or NRO Bank Account with Indian banks
- NRI Demat Account (Repatriable or Non-Repatriable) accounts for equity and derivatives trading.
- NRI Trading Account with a SEBI-registered broker
If investing under the Portfolio Investment Scheme (PIS):
- Must obtain a PIS Permission Letter from a designated bank (mandatory for equity delivery trading).
(Note: PIS has been gradually replaced by the Liberalised Remittance Scheme (LRS)/other routes for certain banks, but compliance rules remain similar.)
2. KYC and Due Diligence
- NRIs must complete enhanced KYC, including:
- Passport + Visa/OCI/PIO
- Overseas and Indian address proof
- PAN
- FATCA/CRS declaration
- AML declaration
- Beneficial ownership details (if applicable)
- In-Person/Video Verification
3. Investment Restrictions
- NRIs can invest in equity under FEMA/RBI rules, subject to sectoral caps.
- Individual NRI: max 10% of the paid-up capital of an Indian company.
- Aggregate NRI holding: capped at 10%, extendable to 24% through
- Board Resolution
- Shareholder Approval
- RBI Notification
- NRIs can trade in F&O subject to SEBI/exchange margin norms, through custodial participation.
- Can trade in derivatives within limits set by SEBI and the exchange:
- Index derivatives: Same limits as domestic clients (e.g., disclosure for positions ≥15% of open interest).
- Stock derivatives: Subject to market-wide position limits.
- Must comply with SEBI’s short-selling, margining, and position limit rules.
4. Margin, Settlement & Trading Restrictions
- NRIs must pay full margins upfront (Initial, Exposure, MTM).
- No intraday, BTST, or leveraged products permitted.
- Derivative trades and settlements occur in INR through custodians/clearing members.
5. Taxation & Reporting
- STCG (≤12 months): 20% + surcharge + cess
- LTCG (>12 months): 12.5% + surcharge + cess on gains > ₹1.25 lakh
- F&O income is treated as business income, taxable at slab rates.
- Banks/brokers must deduct TDS under Section 195, subject to DTAA benefits.
- NRIs must file ITR if taxable income exists.
B. Compliance Requirements for Foreign Portfolio Investors (FPIs)
1. Registration Requirements
- FPIs must register with a Designated Depository Participant (DDP) under SEBI (Foreign Portfolio Investors) Regulations, 2019.
- FPIs are categorized into:
- Category I (low-risk, e.g., government entities, sovereign wealth funds).
- Category II (regulated funds, hedge funds, corporates).
- FPIs must appoint a custodian bank in India, a SEBI-registered intermediary responsible for trade settlement and reporting.
2. KYC and Due Diligence
All investors must complete KYC documentation as per SEBI & FATF standards:
- Valid passport copy
- Proof of overseas and Indian addresses
- PAN (Permanent Account Number)
- FATCA/CRS declarations
- Anti-Money Laundering (AML) declarations
- Beneficial ownership disclosure
- Tax residency certificate
- Global KYC form
3. Investment Restrictions
- A single FPI cannot hold more than 10% of a company’s paid-up capital.
- Aggregate FPI investment must remain within sectoral caps (under FEMA).
- FPIs must comply with SEBI-prescribed position limits:
- Index Futures/Options: Net long positions ≤₹500 crore or 15% of total open interest, whichever is higher, with intraday monitoring.
- Single Stock Derivatives: ≤20% of market-wide position limit (delta-weighted).
- Short-selling, margining, and exposure are regulated by SEBI.
4. Reporting & Disclosure
- Daily transactions to the exchange through custodians
- Monthly beneficial ownership changes
- Any breach of sectoral limits
- Suspicious transactions under PMLA reporting
- Offshore Derivative Instrument (ODI) reporting, if applicable ((only Category I FPIs may issue ODIs)
- Periodic regulatory filings (returns, confirmations, certificate of registration updates)
5. Margin, Collateral & Settlement
- FPIs must provide upfront margins:
- Initial Margin
- Exposure Margin
- Mark-to-Market Margin
- Collateral may be in foreign currency but must be converted to INR.
- Derivatives are settled through clearing corporations via custodians.
- Collateral must meet SEBI haircuts and valuation rules.
6. Taxation
- FPIs are subject to:
- STCG: 20% + surcharge + cess
- LTCG: 12.5% + surcharge + cess
- Custodians deduct TDS under Section 195, subject to DTAA benefits.
- FPIs file returns if they have taxable income in India.
7. Additional Regulatory Conditions
Other Key Conditions
- FPIs must comply with SEBI (Prohibition of Insider Trading) Regulations, including maintaining restricted lists and pre-clearance for sensitive trades.
- FPIs must adhere to SEBI’s code of conduct for intermediaries, ensuring fair dealing and compliance.
- Must maintain proper segregation of funds and securities.
If you plan to trade as an NRI or FPI, it is strongly recommended to consult a SEBI-registered broker or custodian to ensure full compliance.