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South Asian Film Festival in Goa from Fri (June 27) to Mon (June 30)
At Kala Academy, and ESG, Panaji, Goa
http://lists.goanet.org/pipermail/goanet-goanet.org/2008-June/076384.html
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FAQ: how to invest in Indian stock markets
For most NRI's the difficult part about knowing how to go about
investing in the Indian stock markets is finding one place where they can get
all the required information. To start off with, there is definitely quite an
amount of paper work. For instance you would need to open bank accounts and
complete other related formalities. But what investors prefer is to have an
account with a good bank, open an account with a good stock broker and be
comfortable that their funds are safe and that all trades would be executed
fairly and transparently.
So here are the basics on how an NRI could invest in the Indian stock markets
Q. How do NRI's get started once they decide to invest in the Indian
stock market?
A: Firstly they need to open a bank account and decide whether they need to
trade on a repatriable or a non repatriable basis. Now those who already have
bank accounts should check with their bankers to find out whether those are
suitable for stock trading. Know that you can nominate only one bank account
for your stock trading. Some of the leading private banks are competent in this
regard and can help you open an account through the internet that can be
faster.
Q: But isn't that cumbersome paper work?
A There is definitely some amount of paper work to be done. But if you download
the application form from the bank's website it will be a lot faster. If you
want to do it through the internet, you would have to get copies of your
passport, may be some bank statements in original. But the advantage with
bigger banks is that all such information would be available on the website so
you would not have much of a problem.
Here's an overview of the Indian stock market
With over 20 million shareholders India has the largest investor base in the
world after the US and Japan. Investors from all across India invest in shares
and debentures, mutual funds and securities among other investment tools.
Shares can be traded in BSE (Bombay Stock Exchange) or the NSE (National Stock
Exchange). Investors can trade on line or over the phone through the help of an
intermediary. Indian investors can buy shares on day to day basis or use the
futures and options route. Futures and options route is a contract that seeks
assurance from an investor that he/she will trade in a stocks at a future date.
NRI's can invest in the Indian stock market under PIS (Portfolio Investment
Scheme) which is regulated by RBI and NRI's are not allowed to trade in the
stock market on day to day basis. Stock market in India has been an
unprecedented boom in the past year with the Sensex recently hitting a new high
by bridging the 7500 mark. There are 23 recognised stock exchanges
in India but the most active ones are the NSE and the BSE. NSE set up has a
model exchange as a fully automated screen based system. BSE one of the oldest
in the world accounts for the largest number of listed companies has also
started a screen based trading system with the introduction of the Bombay
online trading system. Regulations on the capital markets and the protection of
investors interest is primarily the responsibility of the Securities and
Exchange Board of India (SEBI) headquartered in Mumbai.
Q. Kindly explain the various tools available to invest in Indian stocks and
equities, mutual funds, debentures, government securities etc. What is the
process of investment for each of these?
A: To invest in mutual funds visit the respective mutual fund website or call
them up. You can send them the necessary documents and payment can be made from
the NRE or NRO bank accounts. However, taxation might be an issue. But then the
mutual fund companies can answer your queries regarding this. For stock trading
you can trade online, by the phone or even through a broker.
Q: What is the difference between investments that have a repatriation benefit
and those that do not?
A: If an investor wants to bring in USD 10000 into India and has decided to
stay back, then he can invest that money and he won't have to go through much
paper work particularly when it comes to taxation. Now that is non-repatriable.
But if he wants to take the principal out plus the profits then he would need
an NRE account in which case he would be allowed to take out the principal and
the profits after paying the due taxes.
Q: Are there any guidelines set by the RBI for NRI's to be followed while
investing in the Indian markets?
A: You would have to ask your bank for Portfolio Investment Scheme (PIS)
approval. The bank may charge you a nominal fee of around Rs 1000 to Rs 2000
and you would be allowed to invest in the markets. Another important rule is
that you would not be allowed to day trade. Indian non-resident investors are
not allowed to speculate on a day-to-day basis in the markets. For instance if
they buy shares on Monday they would have to wait till Wednesday to sell it.
However, they would be allowed to trade in the futures segment of the market.
These are the basic general guidelines. RBI has relaxed its rules and it is for
your bank to verify your paper work and the contract notes. They would
definitely charge you a fee for these no doubt. So shop around and look for the
best bank where you can get the best deal.
Q: Does an NRI have to pay extra transaction charges for his demat account
linked with an NRO account.
A: That would depend on the bank. So you would need to take a look at the fine
print while applying for a bank account. Brokers state that there is no such
charge but the bank may charge extra for demat accounts with shares in it. Now
that would be mentioned in the application when you open an account.
Q: Is it necessary to have a broker in India even if the NRI has a demat
account?
A: Yes that is a must. An NRI will not be able to execute any trade without
nominating a stock broker. There is no limit as to how many stockbrokers you
need to have but you must have a stock broker nominated in India.
Q: Can an NRI execute trades through relatives in India?
A: Yes. He can give power of attorney. There are many who do this and its also
a lot easier and faster. Not a bad idea as long as you give them the power of
attorney just to make things more faster and efficient for the client and his
family here.
Q. How should NRI's go about investing in stocks? Do they look for RBI
designated banks and if so where can they start?
A: First and foremost they will have to open a bank account with a RBI
designated bank which allows NRE, NRI, NRO accounts and that is available with
the website of RBI or any banks they can go and check it out, on the site
whether they are designated banks or not. So they will have to open an account
there. That is step one because that is where the money will be coming. Step
two would be to open a demat account and when I say demat account like you have
a bank account for your cash, for your assets like you have equities,
debentures or your mutual fund units you need an account where those assets as
and when you buy and make the payments will be transferred to. So that is step
two and step three would be that you will have to open an account with a
brokerage firm- a SEBI registered brokerage firm or a SEBI registered mutual
fund advisor to buy or sell any of these products and there are designated
stock brokers in this country close to 1600 who are SEBI registered and who a
re allowed to access the trading site or the trading platform of NSE and BSE.
Q: What about IPO's and private placement? Do they have to go through the SEBI
registered portfolio investment scheme and if so you could tell us a little bit
about how that works?
A: In case of an IPO you just need to fill up the IPO form and give a cheque
along with it for whatever amount they want to subscribe to. For private
capitals there is an entirely different set of rules that guide them and
private equity can come into quite a few areas except plantation, agriculture,
real state development although 100% FDI has come but there are restrictions in
terms of the township that they have to make. Those fall basically into FDI. In
case of IPO's all they have to do is fill the form, tell the amount of money
they want to put in the shares that they are subscribing and just send it
across.
Q. The most important concern of NRI, PRO,OCB is how to choose an intermediary,
the financial institution, the stock broker or the bank through which they need
to transact business. Please explain
A: The first and foremost criteria for anybody choosing a bank or a broker is
to see how tech savvy the banks are since these are long distance transactions.
Such ease would enable easy transfer of funds. Besides the broker too needs to
be tech savvy. Secondly before opening an account with the broker you need to
find out their net worth, the strength of the balance sheet of the broker. For
instance if the total net worth of a broker is Rs 1 crore and the NRI sells
stocks worth Rs 50 crore and transfer the asset, the security of your money is
doubtful. While all brokers are strictly regulated by SEBI you must choose a
broker with a strong balance sheet, strong net worth so that your money is
safe.
Q. Any other factor that needs to be considered while assessing the credibility
of the broker?
It's the reputation of the broker, his balance sheet numbers that are
important. Besides you can cross check with SEBI, NSE or BSE. You may ascertain
whether the broker in question has defaulted earlier or he has had issues with
compliance.
Q. Can you throw some light on the various charges that need to be paid while
opening all these accounts? Are there any hidden costs, any transaction fees
that one needs to watch out for?
If you open a DP account with an Indian address you are charged Rs 250 rupees
while if it is with a foreign address the charge is Rs 1000. No other charges
as far as the DP is concerned. But with the brokerage firm obviously when it
comes to transactions from the US you would be charged per transaction.
Typically in India today it is that the value of the transaction. So you will
have to check out with the broker. This is pre-negotiated when you open an
account and there is a lot of flexibility depending on the size of the client
transactions besides there's STT too. Additionally there are statutory charges
like stamp duty, a turnover tax
Q. How does one ensure that he gets the highest return on his investments and
how can one prevent losses?
There are three important aspects and they are fear, greed and hope. The moment
you enter into a transaction there is a fear. After that there is greed when
you say let me wait for some more and subsequently hope and I think that is the
worst. If you've made a wrong decision, cut your losses and get out. Don't get
emotionally attached to a position, to a stock or to an investment. Don't look
for phenomenal returns. The way the Indian markets are going they will give you
the best results. But be realistic. Don't expect unrealistic returns. Besides
do some basic homework before you take the plunge.
Q. What are the taxes that are levied? Also is there a system of double
taxation for NRI's?
That depends on the country in question. But here currently if it is a
repatriable account, there's an STT's levied. Its the minimum levied by the
Indian government
Q. Is there a significant advantage in investing under repatriable?
All that depends on the individual's choice per se, whether he wants the money
repatriated or he doesn't.
Q. Can NRI's, PIO, OCB's invest in government securities? What are the
restrictions?
A. There are no restrictions. The only issue is repatriation, non-repatriation
Q. There are individuals who are not even of Indian origin but would like to
invest in the Indian market. Now is that possible?
The best way they can enter the market is through FII Mutual funds which is
registered in the U.S and which is investing in India. Today, globally most of
the advanced markets have India specific funds. For instance Japan had come out
with India specific funds. So you never knew whether that money is going to
Brazil or Thailand or to Malaysia or India. At present there is quite an amount
of interest in Indian equities. So most of the Mutual funds investing in Indian
equity have India Specific Funds. That way you can put in your money and rest
assured that your money is safe.
Q. What about Over The Counter stock exchanges. How does it work?
A.I think OTCEI is nearly defunct. It was a great idea which came in 94 and
OTCEI was the first exchange where dematerialisation happened. There is nothing
much happening there. Today you have two options the NSE and the BSE for listed
equity, debenture and debt. There is a retail market segment also on the NSE.
Q. Are there any guidelines that foreign investors, NRI's need to keep in mind
in terms of RBI guidelines?
That is routine permission required when you sell stocks. You need to give such
information to RBI and thereafter there are no hassles. Its quite relaxed
compared to the situation around nine years ago. But now the regime is very
investor friendly.
For any Assistance: Mandar Gawande - 09423307844
Karvy Stock Broking - panajim Goa
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