The NRI’s guide to choosing the right kind of account to invest in Indian stocks

But first, what’s a portfolio investment scheme? It’s an arrangement introduced by the Reserve Bank of India to enable NRIs to invest in the stocks of Indian companies, and allows for both repatriation and non-repatriation of profits. But there are differences in PIS and non-PIS accounts that you need to consider before deciding on one.

PIS vs non-PIS

A PIS account linked to non-resident external (NRE) accounts might be the right choice if your priority is to repatriate your profits and funds back to your home country. However, the process of opening a PIS account is complex. As Amit Lalan, director at online trading platform Upstox, explains, PIS accounts require permission from both a bank and RBI, which can make the onboarding process time-consuming, typically about two weeks.

Additionally, PIS accounts come with higher operational and compliance costs due to the regulatory oversight involved. PIS accounts are also subject to RBI’s restrictions on the maximum foreign or NRI shareholding allowed in a company. For example, if HDFC Bank has hit the cap of maximum foreign shareholding, no new NRI PIS purchases will be allowed in the stock. Restrictions also apply to trading in futures and options.

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A non-PIS account, on the other hand, offers a simpler and more flexible approach to investing in Indian securities. Unlike PIS accounts, non-PIS accounts can be opened directly with a broker without needing RBI permission, making the onboarding process faster and more straightforward, said Lalan.

(Note that both PIS and non-PIS demat accounts don’t allow intraday trades.)

Non-PIS accounts are linked to NRO (non-resident ordinary) accounts, which have restrictions on repatriation. This means that while you have more freedom in managing your investments—such as engaging in intraday trading and other active market participation—the ability to transfer funds back to your home country is limited.

Dipen Shah, a certified financial planner and co-founder of NRI FinOne, suggests that NRIs prioritising repatriating their money could opt for PIS accounts while non-PIS accounts are better suited for those prioritising flexibility in their investment strategy over ease of repatriation.

As per RBI’s rules, NRIs can transfer up to $1 million annually from their NRO savings bank account to their NRE savings bank account. To facilitate this transfer, you need a signed cheque or letter requesting the transfer, a Foreign Exchange Management Act (FEMA) declaration, and proof of the source of funds. 

Additionally, you will have to obtain Form 15CB from a chartered accountant and generate Form 15CA via the income tax website to ensure regulatory compliance and verify the transfer’s legitimacy.

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How to get started

Opening a PIS account

To open a PIS account, NRIs must follow several detailed steps. First, they need to obtain permission from a bank to invest in Indian securities. The bank will assist in acquiring the necessary PIS permission from RBI. This process generally takes about two weeks.

Once the permission is secured, you must provide specific documentation to open the PIS account with the broker. This includes a foreign national ID proof, legal address proof from your home country, and attestation from a local attorney. These documents must be physically submitted to the bank with the necessary attestations.

The next step is to link the PIS account to the NRE account, which facilitates repatriation of profits and funds back to your home country. With both the PIS and NRE accounts set up, you can now begin your investing journey.

Opening a non-PIS account

An NRI can directly open a non-PIS account with a broker without having to go through a bank or RBI for permissions. This makes the onboarding process simpler and more straightforward. But a non-PIS account is typically linked to an NRO account, which has restrictions on repatriation of funds.

For F&O trading via a non-PIS account, an NRI needs to register with a custodian participant with a broker’s help. The custodian participant will handle the clearing and settlement of trades.

So which one should you pick?

If you’re transitioning from being a resident to an NRI, here’s how you might approach managing your investments. For example, if you’ve worked in India for several years and are now moving abroad, converting your resident demat account to a non-PIS account could help you manage your existing investments more efficiently.

On the other hand, for your new earnings abroad, opening a PIS account would provide you with the flexibility to repatriate funds back to your home country seamlessly.

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By using a non-PIS account for managing past investments and a PIS account for future earnings, you can align your investment strategy with your financial needs and repatriation goals. This method ensures you optimise both investment management and fund transfers as your situation evolves.

That said, the onboarding process for both PIS and non-PIS accounts poses challenges for NRIs, according to Lalan of Upstox. The process is generally more cumbersome than for resident accounts, involving several complex and tedious steps. Although non-PIS accounts can be opened directly with a broker, the onboarding process is still not as user-friendly as it could be for resident accounts.

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