Legal and Financial Checklist for NRIs Before Investing in PMS in India

Introduction

India’s growing economy and robust financial markets offer great investment opportunities. NRIs PMS provides a personalized investment approach where NRIs can have their portfolios managed by professional fund managers. But investing in PMS requires following certain legal and financial protocols. This guide is a checklist to help NRIs navigate the investment landscape in India smoothly.

1. Eligibility Criteria for NRIs

Before investing in PMS, NRIs must ensure they meet the following criteria:

• NRI Status: As per Foreign Exchange Management Act (FEMA), an individual is considered as NRI if he/she resides outside India for more than 182 days in a financial year.
• SEBI Guidelines: SEBI allows NRIs to invest in PMS provided they follow certain documentation and compliance requirements.

2. Regulatory Framework

Understanding the regulatory landscape is important:

• SEBI Regulations: SEBI regulates PMS providers to ensure transparency, accountability and investor protection.
• FEMA Compliance: Investments by NRIs must comply with FEMA regulations which govern foreign exchange transactions in India.
• RBI Guidelines: RBI provides guidelines on NRI investments especially on repatriation and permissible investment avenues.

3. Documentation Checklist

NRIs need to submit the following documents to start PMS investments:

Proof of Identity: Valid passport with visa details.

• Proof of Address: Overseas and Indian address proofs, such as utility bills or bank statements.
• PAN Card: Permanent Account Number issued by Indian Income Tax Department.
• Photographs: Recent passport sized photographs.
• KYC Compliance: Completion of Know Your Customer (KYC) procedures including submission of KYC form and in-person verification.
• FATCA Declaration: Compliance with Foreign Account Tax Compliance Act (FATCA) by submitting the required declaration forms.

4. Bank Account RequirementsNRIs need to have specific bank accounts for PMS investments:

• NRE Account (Non-Resident External):
  • Currency: Indian Rupees.
  • Repatriation: Fully repatriable.
  • Taxation: Interest income is tax-free in India.
• NRO Account (Non-Resident Ordinary):
  • Currency: Indian Rupees.
  • Repatriation: Repatriation of funds is restricted to USD 1 million per financial year, subject to certain conditions.
  • Taxation: Interest income is taxable in India.

Note: The choice between NRE and NRO accounts depends on the source of funds and repatriation preferences.

5. PIS Account

The Portfolio Investment Scheme (PIS) account is mandatory for NRIs to invest in Indian securities:

• Purpose: To invest in Indian stock markets through designated bank branches.
• Process:
  • Apply through an authorized dealer bank.
  • Submit necessary documents, including passport, visa, PAN card and address proofs.
  • Get RBI approval through the bank.

Note: Some PMS providers may manage the PIS account opening process on behalf of the investor.

6. Demat and Trading Accounts

To hold and trade in securities, NRIs need to open:

• Demat Account: To hold securities in electronic form.
• Trading Account: To buy and sell securities.

Note: These accounts should be linked to the NRE/NRO and PIS accounts.

7. Minimum Investment Requirement

SEBI has a minimum investment requirement for PMS:

• Amount: INR 50 lakhs (approximately USD 60,000).
• Purpose: To ensure PMS caters to high net worth individuals looking for personalized investment solutions.

8. Taxation

Tax implications are important:

• Capital Gains Tax:
  • Short-Term: 15% on gains from securities held for less than 12 months.
  • Long-Term: 10% on gains exceeding INR 1 lakh from securities held for more than 12 months.
  • Dividend Income: As per the applicable tax slab.
• Double Taxation Avoidance Agreement (DTAA):
  • India has DTAA with many countries, so NRIs can avoid double taxation.
  • NRIs need to get a Tax Residency Certificate (TRC) from their country of residence to avail DTAA benefits.

Note: Tax laws may vary as per the NRI’s country of residence. Consult a tax advisor.

9. Power of Attorney (PoA)

Since NRIs are far away, they may appoint a PoA holder in India to manage their investments:

• Scope: The PoA can operate bank accounts, sign documents and execute transactions on behalf of the NRI.
• Documentation: The PoA document should be notarized and in some cases attested by the Indian embassy or consulate.

10. Choosing a PMS Provider

Selecting the right PMS provider is key:

• SEBI Registration: Ensure the provider is registered with SEBI.
• Track Record: Check the provider’s performance history and client testimonials.
• Investment Strategy: Understand the provider’s investment philosophy and whether it matches your financial goals.
• Fee Structure: Clarify all charges including management fees, performance fees and exit loads.

11. Compliance and Reporting

Compliance is important:

• Regular Statements: PMS providers must furnish periodical reports on portfolio performance, holdings and transactions.
• Audit Reports: Annual audit reports will give you an insight into the financial health of the investments.
• Regulatory Filings: Ensure timely filing of necessary forms and declarations like FATCA and Common Reporting Standard (CRS) forms.

Conclusion

Investing in PMS offers NRIs a structured and professional way to manage wealth in India. By following the legal and financial checklist above, NRIs can ensure compliance, maximize returns and achieve their investment goals. Consult financial advisors and stay updated on regulatory changes to further enhance the investment experience.

Note: This article is for information purposes only. NRIs should consult with financial and legal advisors before investing.