Common Mistakes NRIs Make When Investing In the Indian Stock Market

Indian Stock Market

The Indian Stock market continues to entice investors from all over the world, including the NRIs (Non-Resident Indians). According to the last 10-year data in Dollar terms, the Nifty50 has outperformed most international indices, despite a fall in the Indian Rupee’s value.

An NRI’s investment portfolio is not truly diversified if it lacks investments in the Indian share market. Post-pandemic, the heightened use of the online mode of investing has made processes and procedures for investment-related transactions easier and more convenient. With this, the first-generation Indian migrants need not squeeze in their India-based financial decisions into their short-duration home visits to the country. Additionally, NRIs need not delegate their investments in India to relatives and friends and save themselves from financial pitfalls.

There are some common mistakes that NRIs make when investing in the Indian Stock Markets. Awareness of these mistakes can help you save yourself from wrong financial decisions that ultimately lead to legal and financial tangles.

Common Mistakes NRIs Make When Investing In the Indian Stock Market

1. Continuing with resident accounts: 

An NRI cannot continue using his resident bank accounts to transfer funds for his stock market investments in India or open demat accounts meant for resident Indians. The foreign exchange guidelines have made it mandatory for an NRI to change the status of their bank accounts to Non-Resident Ordinary (NRO) accounts before using them for stock market or other transactions. When an NRI invests in mutual funds in the country, he must inform the registrar for such investments about his NRI status and provide the required paperwork. Additionally, an NRI wanting to invest in shares and non-convertible debentures of Indian businesses listed on the Indian stock market cannot do so through a standard trading account. An NRI has to use an NRO demat account and his investments are channeled through a Portfolio Investment Scheme (PIS) account. Failure to adhere to this compliance can lead to serious penalties for an NRI investor.

An NRI can continue using the Public Provident Fund (PPF) account he opened in India. However, the maturity period of such a PPF account cannot be extended beyond 15 years. Also, an NRI cannot open a new PPF account.

2. Ignoring tax implications: 

If an NRI lives in a country, not having a DTAA (Double Tax Avoidance Agreement) with India, his earnings from the Indian stock market may be subjected to double taxation (In India and the country of residence). India has a DTAA with approximately 90 nations across the world, however, it is advisable to check the same before investing in India to avoid mounting taxes.

Redemption of NRI mutual funds and an NRI’s capital gains from a property sale in India are subject to high tax deductions. One must keep himself updated with the tax implications in India and the resident country to avoid being caught off guard.

3. Worrying too much about depreciation in the value of the Indian Rupee: 

The value of the Indian Rupee has depreciated by 8.2% against the US Dollar and 5.8% against the Euro over the last decade. This figure is usually discouraging for NRI investors to invest their money in Indian assets. Having said that, one must acknowledge that the Indian economy is one of the fastest-growing economies in the world. The same holds true for the Indian stock market indices. As stated earlier, our Nifty50 index has shown exemplary growth over the last decade compared to other indices. Therefore, if an NRI investor focuses too much on the Rupee’s value, he may deprive himself of the Indian economy’s and the stock market’s promising future.

NRI investors can gain substantially from their Indian investments by seeking professional advice from expert finance managers. It would add diversification to their portfolio and prove to be an excellent avenue for wealth generation whether they plan to return to India or not.

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