PORTFOLIO INVESTMENT SCHEME
Portfolio investments are investments as a gathering (portfolio) of assets, incorporating transactions in value securities, such as regular stock, and obligation securities, such as banknotes, bonds, and debentures.[1] Portfolio investments are passive investments, as they don’t involve dynamic administration or control of the issuing organization. The purpose of the investment in case of Portfolio investments is solely monetary benefit, in contrast to foreign direct investment (FDI), which allows an investor to exercise a specific level of administrative control over an organization. For worldwide transactions, value investments where the proprietor holds less than 10% of an organization’s shares are classified as portfolio investments.
[2]These transactions are also alluded to as “portfolio flows” and are recorded in the money related record of a nation’s adjust of payments.
Portfolio Investments are sorted in two noteworthy parts: Foreign institutional investment and investments by non-residents. As indicated by the Institute of International Finance, portfolio flows arise through the transfer of ownership of securities starting with one nation then onto the next.
[3]Portfolio investment covers a scope of securities, such as stocks and bonds, as well as different types of investment vehicles. A diversified portfolio helps spread the risk of possible loss because of beneath expectations execution of one or a couple of them.
Portfolio Investment Scheme—
A scheme of Reserve Bank of India—enables NRIs and OCBs to purchase and sell shares and convertible debentures of Indian companies on a perceived stock trade by steering such purchase/sale transactions through their NRI Savings Account with a designated bank branch. NRIs can invest on repatriation basis under PIS course up to 5% of the paid up capital/paid up the estimation of every series of debentures of listed Indian companies, inside general permissible limits, subject to consistency with RBI guidelines. The NRI investor has to take a conveyance of the shares purchased and give conveyance of shares sold.
The investment on repatriation basis has to be made by method for funds from internal settlement of remote trade through ordinary banking channels or out of funds held in NRE (Non-Resident External Rupee Account) /FCNR (Foreign Currency Non Resident (Bank) Account), the record kept up in India.
Some key features of NRE PIS (Non-Resident External Rupee Account Portfolio Investment Scheme) are given beneath:
Shares purchased by NRIs on the stock trade under PIS can’t be transferred by a method for sale under the private game plan or by a method for a blessing to a person resident in India or, on the other hand outside India without the earlier endorsement of RBI.
NRIs need to open an NRE PIS represent the purpose of investments in secondary advertises on repatriation basis. With the end goal of investments in the secondary market on non-repatriation basis, investments have to be straightforwardly produced using NRO Savings Bank (SB) account (Non-Resident Ordinary Rupee Account). NRE PIS account is free of NRE Savings Bank (SB) account which NRIs can keep up for their different needs. The PIS record will catch the proceeds of share sale/purchase transaction and such transactions will be accounted for by the Bank to the RBI (Reserve Bank of India).
The NRI can’t keep up various PIS accounts with various banks. Both purchase what’s more, sale contract notes, in unique, should be submitted by the NRI inside 24/48 hours of execution of the agreement to the designated branch with whom the PIS account is kept up. The onus is on the NRI for submission of agreement notes to the designated branch of the AD bank.
WHO IS A NON-RESIDENT INDIAN (NRI)?
Non-Resident Indian (NRI) means a “person resident outside India” who is a native of India or is a person of Indian origin”[as per FEMA regulations].
NRI can purchase shares or convertible debenture of an Indian Organization through stock exchanges, under the portfolio investment scheme on repatriation and/or not repatriation basis.
Also, NRI (Non-Resident Indian) / PIO (Person of Indian Origin) can invest in different securities in particular:
- Dated Government securities (other than conveyor securities) or treasury bills.
- Units of domestic common funds.
- Bonds issued by a Public Sector Undertaking (PSU) in India.
- Shares in Public Sector Enterprises being disinvested by the Government of India.
NRIs are permitted to invest in Exchange Traded Funds (ETFs). NRIs can invest in ETFs both on repatriation as well as non-repatriation basis.
According to Reserve Bank of India (RBI) guidelines, NRI who wishes to invest in shares in India through a stock trade need to approach the designated branch of any approved merchant (bank) approved by reserve bank to administer the PIS (Portfolio Investment Scheme) to open a NRE (Non Resident External)/NRO (Non Resident Ordinary) account under the scheme for directing Investments.
INVESTMENT MADE UNDER PIS
The repatriation of the sale proceeds is permitted if the first purchase was made on repatriation basis and the sources of investment were from NRE (Non-Resident External Rupee Account) /FCNR (Foreign Currency Non Resident (Bank) Account) account or by means of settlement from abroad. On the off chance that the first purchase was produced using NRO (Non Resident Ordinary) a/c then the sale proceeds are not repatriable.
Also, Investment can be made on repatriation as well as non-repatriation basis. Be that as it may, the investor should open NRE (Non-Resident External Rupee Account) account as well as NRO (Non Resident Ordinary) account with the Designated Bank. The sale proceeds of non-repatriable investment can be gathered in NRO A/c as it were.
Further, according to late RBI guidelines, NRI should have a separate bank account exclusively for Portfolio Investment Scheme purposes. Transactions identifying with their personal banking as well as by virtue of transactions identifying with shares procured other than under PIS including IPOs should be directed to a separate bank account not connected to PIS, Record/s can be joint.
On the off chance that an NRI has existing portfolio purchased under IPO in the essential market both on repatriation and non-repatriation basis than The shares/convertible debentures gained under IPO require not be directed through Designated Bank as this does not go under PIS. Such transactions, if directed through a designated bank, should be done in a separate bank account not connected to PIS.
LIMIT FOR PURCHASE/SALE OF SHARES / CONVERTIBLE DEBENTURES BY AN NRI IN THE SECONDARY MARKET
NRI can purchase up to a greatest of five percent of the paid up capital of an organization and most extreme of five percent of paid up estimation of every series of debentures. With the end goal of this roof investment in repatriable and non-repatriable will be clubbed. Notwithstanding above NRIs by and large can hold up to a most extreme of 10% of such holding or any higher rate so allowed in respect of a specific organization. Shares/debentures gained through essential market are rejected with the end goal of above limits.
Further, RBI notifies a list of companies where as far as possible has come to and where no fresh purchases can be made. This list is called watch list. RBI also notifies a list called alert list telling the names of companies whose NRI holdings have come to 2% underneath as far as possible. Any further purchases are permitted just by acquiring earlier endorsement from RBI. Such approvals are issued by the RBI on first start things out serve basis.
In addition, it is required for an NRI to course all secondary market transactions through his PIS designated account i.e. for all purchase/sell of stocks in secondary market just the PIS designated record should be charged/ credited.
[1] "Portfolio Investment, net (BoP, current US$)". World Development Indicators. World Bank. [2] "Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6)" (PDF). IMF. [3] "Portfolio Flows Tracker FAQ". IIF.
