Portfolio Investment Scheme FAQs
What is Portfolio Investment Scheme?
Portfolio Investment Scheme (PIS) is a scheme of Reserve Bank of India defined in Schedule 3 of Foreign Exchange Management Act 2000. As per the scheme the NRIs and OCBs can purchase and sell shares and convertible debentures of Indian Companies on a recognised stock exchange by routing such purchase/sale transactions through their account with a Designated Bank Branch. (With effect from 29/11/2001 RBI has restricted OCBs from making fresh purchases. They can however continue their existing holdings or sell off the same).
Can an investment made under PIS be repatriated?
The repatriation of the sale proceeds are allowed if the original purchase was made on repatriation basis and the sources of investment were from NRE/FCNR account or by means of remittance from abroad. If the original purchase was made from NRO a/c then the sale proceeds are not repatriable.
Can an investor under PIS make an investment on repatriation basis as well as non-repatriation basis?
Yes. Investment can be made on repatriation as well as non-repatriation basis. However, the investor will have to open NRE account as well as NRO account with the Designated Bank. The sale proceeds of non-repatriable investment can be collected in NRO A/c only.
Do NRIs who already have an account need to open another NRE/NRO account? Can the account be a joint account?
As per recent RBI guidelines, NRI should have a separate bank account exclusively for PIS purposes. Transactions relating to their personal banking as well as on account of transactions relating to shares acquired other than under PIS including IPOs should be routed in a separate bank account not linked to PIS. Account/s can be joint.
If an NRI has existing portfolio purchased under IPO in the primary market both on repatriation and non-repatriation basis, does he still have to route the sales of such holding through the Designated Bank?
The shares/convertible debentures acquired under IPO need not be routed through Designated Bank as this does not come under PIS. Such transactions, if routed through designated bank, should be done in a separate bank account not linked to PIS.
Is there any limit for purchase/sale of shares / convertible debentures by an NRI in the secondary market?
Yes. NRI can purchase upto a maximum of five percent of the paid up capital of a company and maximum of five percent of paid up value of each series of debentures. For the purpose of this ceiling investment in repatriable and non-repatriable will be clubbed. In addition to above NRIs collectively can hold upto a maximum of 10% of such holding or any higher percentage so permitted in respect of any particular company. Shares/debentures acquired through primary market are excluded for the purpose of above limits.
How does an NRI know whether a particular company is open for NRI investment? Is there any tax obligation?
RBI notifies a list of companies where the ceiling limit has reached and where no fresh purchases can be made. This list is called watch list.
RBI also notifies a list called caution list notifying the names of companies whose NRI holdings has reached 2% below the ceiling limit. Any further purchases are allowed only by obtaining prior approval from RBI. Such approvals are issued by the RBI on first come first serve basis.
The Watch and Caution list is available on the RBI Website. Please click here to refer the same.
Is it mandatory to place the orders for purchase/sale of shares / convertible debentures through the Designated Bank?
The orders need not be placed through the Designated Bank. Further, the reporting of the transaction shall be done to the Designated Bank on the same day of transaction along with original contract note. One needs to ensure that the payment and receipt of funds in settlement of such trade has to be routed through the Designated Bank account only.
Is it mandatory to route the secondary market transactions through PIS designated account only?
Yes, It is mandatory for a NRI to route all secondary market transactions through his PIS designated account i.e For all purchase / sell of stocks in secondary market only the PIS designated account should be debited / credited.