Q1) What is the Portfolio Investment Scheme ?

A) It is a scheme under which RBI allows NRIs/OCBs/FIIs to purchase shares and securities of Indian companies or units of domestic mutual funds through the stock exchanges in the secondary market. FIIs can now invest in Government dated securities and Treasury Bills as per RBI press release dated June 11, 1998.

Q2) Can NRIs/OCBs buy on repatriable basis ?

A)Yes. You are allowed to buy under this scheme on Repatriable basis and also on Non Repatriable basis, if you choose.

The following forms need to be submitted to "Authorised Dealers" by NRIs/OCBs for this purpose.

  • FORM - NRI & RPI - by individual NRIs.
  • FORM - NRC & RPC - by Overseas Corporate Bodies

Q3) How long is the validity of such RBI permission ?

A) RBI gives general permission for a period of 5 years initially and the same can be renewed further by making a request by means of a simple letter.

Q4) What is the quantum limit for investing under Portfolio Investment Scheme ?

A)The following rules govern the quantum limits:

  • Investment made by a single NRI, OCB can be upto 5% of the paid up capital of the company.
  • The aggregate limit for all NRIs, OCB investment through secondary market is upto 10% of the paid up equity capital.
  • The aggregate investment by all NRIs, OCBs and FIIs through stock exchanges can be upto the enhanced limit of 24%/30% (subject to the General Body Resolution of the company) would continue to be operative.

Q5) Is Registration of shares/securities compulsory if NRIs/OCBs buy under Portfolio Investment Scheme ?

A)Registration of shares and securities is not compulsory when the NRIs and OCBs buy under PIS and pay through the NRE account or Inward remittance source. However, for seeking repatriation of the funds invested, they must take the delivery of the scrips through the stock exchange and also give delivery of scrips while selling. In these cases, short selling is not permitted.

Q6) Can one NRI transfer shares/securities to another NRI directly ?

A) In exercise of powers conferred by clause (b) of sub-section (1) of Section 29 and sub-section 4 of section 19 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank of India permits,

  • Non-Residents to acquire shares of companies incorporated in India from other Non-Residents (other than Overseas Corporate Bodies, Non-Residents Indians and Persons of Indian Origin) by way of sale/transfer provided the transferor/seller had acquired the shares under general/special permission of reserve Bank.

  • Non-Resident Indians and Persons of Indian Origin and overseas Corporate Bodies to acquire shares of companies incorporated in India from other Non-Resident Indians, Persons of Indian origin or Overseas Corporate Bodies by way of sale/transfer provided the transferor had acquired the shares under general or special permission of Reserve Bank. The rights of the transferee/purchaser in respect of shares so acquired, shall be subject to same restrictions and conditions as were applicable to the transferor/seller of the shares.

Companies incorporated in India and/or a Depository can enter in their register or books in which securities are registered or inscribed, an address outside India of a holder of any securities consequent upon acquisition or such securities.

Q7) Can I repatriate my original investment with profits arising from sale, under this scheme ?

A) Yes. Investment under Portfolio Investment Scheme which originally has been made through Inward Remittance or NRE/FCNR accounts can be repatriated after the payment of income tax. Long term capital gains tax becomes payable @ 10% if you earn profit on an investment which was held by you for 1 year from the date of investment. Disinvestment of securities within 1 year from the date of investment resulting in earning of profit will attract short term capital gains tax.

Q8) How do I avoid the cumbersome paper work and the time consuming procedure for registration of my shares, which is attendant with risks ?

A) The investors have been given a big relief by the Indian legal authorities who have introduced the mechanism of depositories and now it has become possible to hold the shares/debentures in the electronic form by maintaining the account with recognized depository participants.

Since the sellers also have been given freedom to effect the delivery of shares in dematerialisation of their shares and gradually the process is picking up, indicating that there is a growing awareness in the investors community. The obvious advantages for NRIs as well as any type of investors are as below:

  • Clean and safe delivery of shares in the electronic form, without any paper-work.
  • No hassles of objection / bad delivery / follow-up with companies.
  • Savings on stamp duty and time taken for registration.
  • Instant facility of re-materialisation of the shares if the investor desires to hold shares in physical form.
  • Enhanced limit and reduced margin for borrowings against shares in demat form. (The maximum loan limit is Rs. 2 mio. per individual borrower if dematerialised shares are pledged and the minimum margin requirement is only 25% of the market value of the shares).
  • Inventory of shares held in demat form available in the form of statement of account at regular intervals from the depository participants with whom you open the account.
  • Effect the delivery by means of a simple authorisation slip.
Back to Frequently Asked Questions