Benefits and limitations of PIS and Non-PIS accounts to make an informed decision about your Indian stock investments.
As a non-resident Indian (NRI) ready to invest in Indian stocks, you face an important choice: Is it better to have an account in PIS or have an account with non-PIS? Let’s look at the analysis of these choices to ensure you make the correct investment decision.
PIS Accounts: PIS account is a mandatory procedure for NRIs who are seeking for Investments in Equity markets and it comes under the regulation of the Reserve Bank of India. These PIS accounts comply with Indian foreign exchange rules and regulations.
Portfolio Investment Scheme (PIS) has been initiated by the Reserve Bank of India to provide the NRIs with an opportunity to invest in Indian stock and shares either to earn profit and take out of India or otherwise. Therefore, if the aim is to bring back the profits and your money to your home country, there cannot be a better way than the PIS account coupled with a Non-Resident External (NRE) account.
PIS accounts have increased business operating and compliance costs due to the regulatory authority system. Besides, they are governed by the maximum permissible limit on the number of foreigners that are allowed to invest in a company set by the RBI. For instance, if HDFC Bank has its foreign shareholding to the maximum, then the new purchases by any NRI will be constrained. Other forms of trading like futures and options trading are also restricted.
Non-PIS Accounts: Non-PIS accounts offer an alternative for NRIs who may prefer indirect investment methods or less regulatory overhead.
Non-PIS accounts, which are linked to Non-Resident Ordinary (NRO) accounts, are less cumbersome and provide more freedom in investment. You can open these accounts through a broker without the permission of the RBI as compared to other accounts which makes the setting up process easier. However, what must be noted about non-PIS accounts is that they have restrictive repatriation policies. While they afford more flexibility in the management of the investments including day trading and other operations in the market, there are restrictions to transferring the money back to one’s home country.
As per RBI rules, NRIs can transfer upto $1 mn in a year from their NRO to NRE savings bank account provided they comply with the multi-faceted steps as established by the central bank.
If you engage in futures and options trading using an account other than your PIS account, you have to apply for a custodian participant through your broker. It means that the custodian bears the responsibility of clearing and settling trades.
Choosing the Right Account: If the individual is changing his/her status to an NRI, then one should continue with non-PIS for existing investments while starting with a new PIS for the new earnings if he/ she wishes to use the account for easy repatriation of money. This way, you are in a position to properly manage the past stakes while at the same time guaranteeing that future revenues can be easily transferred.
The PIS accounts are most suitable for individuals who intend to remit back their money later because they present several limitations to the investment actions of the account holders On the other hand, the non-PIS accounts give the account holders much freedom in the investment initiatives that they undertake. Each of these account types has some unique issues, making the onboarding process more elaborate than in the case of resident-type accounts. It is therefore imperative for you to be clear on your investment objectives before opting for the appropriate financial investment approach.
