Budget 2012: Can equity investing be simpler for NRIs please?

The Indian equity market has been among the top destinations for investors globally for some time now. Even since the crash of 2008, the BSE Sensex has recovered, and that too, quite strongly. From a bottom of 8300 levels in March 2009, the BSE Sensex today stands at close to 18000 levels, a CAGR of nearly 30%. This, at a time, when developed markets saw extremely sluggish growth. With projected GDP growth rates of 7% upward, India promises to be a good investment even in the future.

Non Resident Indians (NRIs), have in the past, invested in India largely for emotional reasons. Now, with the added high growth opportunity, it is hard to resist being part of the Indian equity market.

Moreover long term equity investments in India, that is, investments held for longer than 1 year are tax free. For NRIs, the tax angle too is one thing less to worry about while investing in Indian equities.

The picture looks pretty, but try opening the necessary bank and demat accounts to start making investments. The process is anything but pretty.

Multiple accounts To begin with, there are two different kinds of demat accounts – the Portfolio Investment Scheme, PINS account and the Non PINS account.

Then there are two options – repatriable through Non Resident External (NRE) bank account and non-repatriable through Non Resident Ordinary (NRO) bank account.

Between these two types of accounts and two options, there are four possible combinations:

1. NRO Non PINS: If you are an NRI, then this account is to be used to transfer shares you purchased while you were a resident. You can also use this account as an NRI to purchase IPOs, mutual funds and derivatives on a non repatriable basis.

2. NRE PINS: When you become an NRI, you would need an NRE PINS to invest in shares on a repatriable basis.

3. NRO PINS: If as an NRI you want to purchase shares on a non-repatriable basis, you will use the NRO PINS account.

4. NRE Non PINS: While PINS accounts can be used only for purchase of shares, NON PINS accounts can be used for IPO purchases, investing in mutual funds and derivatives or for gifts and inheritances. As an NRI, you can use the NRE Non PINS account to make these investments on a repatriable basis.

So depending on his needs, an NRI may have up to open and track 4 different demat accounts.

Paperwork and documentation You would need to submit attested copies of your passport, visa, address proof and PAN card, your photographs, and the account opening application. If you are abroad, you would need to send these documents to the relevant office in India.

Moreover, if you have bank accounts with one bank and you want to open demat accounts with another bank, you may not be able to link your existing bank accounts to the new demat accounts. You would have to open new bank accounts with the bank that you are opening your demat account. This is usually done so that each bank can have its own monitoring mechanism in place.

Make it easier please! This complicated structure has evolved over a period of time as the Reserve Bank of India (RBI) and the Securities Exchange Board of India ( SEBI) liberalised repatriation and investing rules for NRIs.

While the intent is great, if the Government could only iron out these complications and make it easier for NRIs to invest.

(The author is a chartered accountant and a finance writer. She also blogs at http://blogs.economictimes.indiatimes.com/moneyhappyreturns/ .)