All you should know about the RBI’s Portfolio Investment Scheme

Post the COVID-19 pandemic, the number of retail investors in the Indian stock markets has shot up rapidly. While the total demat account holders in India were less than two crores before 2020, it proliferated to 18.50 crore by the year 2024. With a growing number of these accountholders being NRIs, this figure reflects a growing trend in investors using the Reserve Bank of India’s (RBI) Portfolio Investment Scheme (PIS).

The Portfolio Investment Scheme was devised under Schedule 3 of the Foreign Exchange and Management Act (FEMA) 2000 to permit NRI investors to invest in the Indian stock markets.

This article will help you understand PIS and how you can make the most of this scheme as a potential investor.

What is the RBI's Portfolio Investment Scheme?
 

The RBI’s Portfolio Investment Scheme allows NRIs, including Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs), to purchase and sell shares and Non-Convertible Debentures (NCDs) of Indian companies through the recognised stock exchanges in India. The beneficiaries of this scheme can invest in the share markets on a repatriation or non-repatriation basis.

Below are a few features of the Portfolio Investment Scheme you should know to understand it better -

1. You can invest only in the stocks and NCDs of eligible companies listed on an Indian stock exchange. For example, you are not allowed to invest in the shares of companies that are engaged in chit fund, agriculture, plantation, and real estate business related to the construction of farmlands or farmhouses
   
   
2. You cannot indulge in intraday trading, Buy Today Sell Tomorrow (BTST) trading, or short selling. You can only take the delivery of eligible stocks
   
   
3. There is a ceiling on the number of shares in a company that you can add to your portfolio under the PIS. For example, aggregate investments by NRIs in a company should not exceed 10% of its total paid-up capital. However, the RBI can decide to raise this limit to 24% under special circumstances
   
   
4. To start investing under the Portfolio Investment Scheme, you must have a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) bank account. You will also need to obtain a PIS letter from the RBI after opening your NRI (NRE or NRO) bank account
   
   
5. You can have your NRE or NRO account with only one bank that will channel your transactions under the Portfolio Investment Scheme
   
   
6. You cannot invest under the Portfolio Investment Scheme through a joint account. As per the RBI guidelines, you must have an individual NRI bank account for PIS
   
   
7. You can also invest in Futures and Options (F&O) contracts of eligible stocks under the Portfolio Investment Scheme. However, this can be done only on the non-repatriation basis
   
   
8. If your status shifts from an NRI to a resident Indian, you cannot continue investing under the Portfolio Investment Scheme. You will have to inform your bank at the earliest to change the status of your PIS account

​​Eligibility criteria for opening a PIS account
 

The following entities are eligible to open a PIS account as per the RBI rules –

1. An NRI
2. A person of Indian origin
3. An overseas citizen of India

As per the FEMA Act, an Indian citizen who has lived in a foreign country for more than 182 days during a financial year can be considered an NRI. However, the RBI debars the following categories of people from opening a Portfolio Investment Scheme account –

1. Indian residents who are travelling overseas for medical treatment or check-ups
2. Indian residents who are travelling abroad for a short trip, be it for business or personal
3. Indian residents who are residing in Pakistan or Bangladesh without prior RBI approval
4. Indian residents residing in Nepal and Bhutan
5. Seafarers or mariners employed by Indian shipping companies

Documents required for a PIS account
 

You must link your NRI bank account with PIS to avail of the benefits under the Portfolio Investment Scheme. Below are the documents that you will require –

1. A PIS letter obtained from the RBI
2. A valid visa copy
3. Your valid Passport copy
4. Your foreign Passport copy (if applicable)
5. Your NRI status proof
6. Your NRE or NRO bank account details
7. Your overseas address proof
8. Your Indian address proof
9. Your Indian PAN card
10. Your recent passport-sized photographs
11. A Foreign Account Tax Compliance Account (FATCA) declaration form

How to start investing in stocks through PIS?
 

If eligible, you can start investing in stocks and NCDs through the Portfolio Investment Scheme in the following steps –

1. Open an NRI savings account with an RBI-registered bank. For investing on a repatriation basis, you must open an NRE savings bank account. Whereas, for investing on a non-repatriation basis, you will need to open an NRO savings bank account. If you already have any of these accounts, you can use them for investment purposes
   
   
2. Apply for a PIS letter with the RBI. This can be done with the help of the bank with which you have opened your NRI bank account. You may have to pay a PIS issuance charge to your bank to get the PIS letter. The RBI has authorised only a few specified banks to administer the PIS letter
   
   
3. Link your NRE or NRO bank account with PIS to make it the designated account for investing in stocks and bonds through the Portfolio Investment Scheme. All transactions made under this account will be reported to the RBI
   
   
4. Open an NRI demat account with an authorised stockbroker and link it with your PIS-linked bank account. Then, you can start buying and selling stocks through your demat account, just like a normal resident Indian

Risks to consider before investing through the PIS
 

Investing in stocks through the Portfolio Investment Scheme entails certain risks, such as –

1. Market fluctuations
 

Returns from stock markets are never guaranteed. They depend highly on market fluctuations. But if you remain invested for the long term, there are high chances that you will gain positive returns from your investments.

2. Taxation
 

Any profit earned from equity investments will be subject to tax laws in India. If you redeem your investments within one year, you will have to pay 20% as short-term capital gains tax. However, no tax is payable if your investments are held for over a year.

3. Currency rate fluctuations
 

Your investments made in Indian instruments may be exposed to currency rate fluctuations. A decline in the forex rate of your domestic currency may bring down your investment profits.

4. Limited trading hours
 

Stock exchanges in India remain open for trading only from 9:30 AM to 3:30 PM as per the Indian Standard Time (IST). If you place your order after the closing time, it will get executed on the next trading day.

​​Conclusion
 

The Indian equity markets offer ample investment opportunities for NRIs. However, they will need to direct their investments through the RBI’s Portfolio Investment Scheme. As an NRI, you can use IDFC FIRST Bank NRI Banking Services to make your investment journey in India seamless.

For example, you can open an IDFC FIRST Bank PIS Account and start investing in stocks from the convenience of your home. Click here to get your PIS account instantly without incurring any additional charges.