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Portfolio Investments Schemes

The Foreign Exchange Management Act 2000 defines the Portfolio Investment Scheme, permitting non-resident Indians and foreign institutional investors to buy and sell shares and convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges. Purchase of shares of any company from the secondary market is subject to a ceiling of 5% of the paid-up share capital and 5% of the paid-up value of each series of debentures.

Application for the PIS

Banks designated by the RBI can accept applications at branches located close to the nearest stock exchange. A NRI can operate the PIS through only one selected branch. To operate from more than one branch, special permission from the RBI is required. The following documents are generally required by designated banks to apply for the PIS:

  • PIS application form
  • RPI or NRI Form, with details of shares bought from the primary market
  • Tariff Sheet of the PIS
  • Demat Account opening form

Sale of shares
The PIS allows for sale of shares, bonds and debentures by NRIs to residents through private arrangements with the approval of the RBI. General authorization from the RBI is also available for transfer of shares, bonds and debentures by way of gifts to resident close relatives
For sale or transfer of shares and debentures of Indian companies to other NRIs, no permission is required from RBI. The transferee NRI, however, would require permission for purchase of the shares.
Short-selling or selling the shares bought by NRI investors before delivery is prohibited.
Tax Obligations

Investors under the Portfolio Investment Scheme are liable to pay Capital Gains Tax on their investments which depends on the tenure of their stocks. Prevailing rates are deducted at source by the designated bank.
Repatriablity of PIS
Proceeds of sale of stocks purchased under the PIS from NRE or FCNR accounts or from foreign remittances are repatriable. Investments made in the PIS from NRO accounts are not eligible for repatriation.
A combination of repatriable and non-repatriable investments under the PIS is permitted, though these would have to be operated through NRE and NRO accounts respectively. Exclusive NRE and NRO accounts have to be maintained for PIS, which can be held by joint account holders.

Portfolio Investments from Foreign Institutional Investors
Portfolio investment from Foreign Institutional Investors (FIIs) has been in operation since 1992. FIIs including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Institutional Portfolio Managers or their power of attorney holders can invest in all the shares, debentures and warrants issued by listed companies on the primary and secondary markets.

The RBI issues a “watch list” which informs NRIs and FIIs of the companies that have reached their maximum ceiling on investments under PIS. A “caution list” sends an alert on the investment ceiling nearer to 2% of the upper limit.


 

 

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