Destination India: How to Invest in World’s next bull market

Election result of India, the Biggest democracy in the World, gave clear mandate to the“Development” agenda of Mr. Narendra Modi who has successfully led Gujarat as a Chief Minister for 12+ years and put the state in the limelight with his vision, planning, transparent policies and ability to attract foreign investments.

This gave great hopes to the business community of pro-business, pro-investment climate with clear, no-nonsense political will; and to the investors an opportunity to participate in the India’s success story of next decade.

While there has been a need of investment for India’s development, now, there is a political will for development as well as companies and businesses are ready to invest in India. With need, will and readiness for development, India will grow for sure. And, for a foreign investor, two things are bound to happen:

  1. Watching / reading about the India’s growth story in the news OR
  2. Becoming a part of India’s growth story and earning double digit returns.

If you want to explore investing in India, it is very important to understand the regulations, requirements and procedures related to foreign investments in India.

Regulatory Overview:
In India, Foreign Exchange Management Act (FEMA) governs foreign investments and allows investment in India by non-residents as Foreign Direct Investment (FDI) or under the Portfolio Investment Scheme (PIS) of Reserve Bank of India (RBI). FDI by multinational companies making business investments is different from portfolio investment in Indian securities (stocks, bonds) by investors. The requirements under the PIS are different for investments by Non-Resident Indians (NRIs) and Foreign Portfolio Investors (FPI).

A. Foreign Direct Investment (FDI)
An individual or a company of foreign country can invest in India through FDI, either by setting up a new company, buying a company or by expanding operations of an existing business.

An Indian company may receive FDI under Automatic or Government (Approval) Route. FDI in all activities/sectors as specified in the consolidated FDI Policy is allowed under Automatic Route, whereas FDI in any other activities would require prior approval of the Government.The Indian company receiving FDI is required to comply with provisions of the FDI policy and report the FDI to the RBI.

B. Investment under PIS:
NRIs and FPIs are allowed to invest in shares or convertible debentures of listed Indian companies in recognized stock exchanges on repatriation and non-repatriation basis under PIS.

A separate PIS account to be opened which will be linked to the respective Bank account e.g. for investment on repatriable basis, a Non-Resident External (NRE) bank account is linked to the NRE -PIS account. The investment is made on delivery basis only; short selling or intra-day trading is not allowed and the activity is reported to RBI on a daily basis.

B(i) Non-Resident Indian (NRI):
Investment by NRI is straight forward and is easy. There is no registration requirements, categories or fees. NRI would contact the bank to open a bank and PIS account and then would invest or trade on delivery basis through a broker. The purchase or sale of investments is reflected in the Demat (shares in electronic form) account with broker.

B(ii) Foreign Portfolio Investor (FPI):
A new category of Investors - FPI was introduced to encourage and simplify Foreign Portfolio Investment from January 2014. FPI is person who is not a resident in India nor a NRI but a resident of a country that is signatory to MOU with IOSCO/SEBI, member of Bank for International Settlement, and no warning issued from FATF. FPI should also be legally permitted to invest in securities outside its country of incorporation/ residence and is a fit and proper person as prescribed.

There are three categories of FPIs: Category I FPIs include foreign government and government related investors; Category II FPIs include mutual/pension/university funds, banks, insurance or asset management companies, portfolio/investment managers or advisors, university endowments, etc.; Category III FPIs include all others FPIs such asindividuals, family offices, corporate bodies, trusts, foundations, endowments, etc.

Registration of FPI is undertaken and granted by Designated Depository Participants (DDPs) on behalf of SEBI on payment of fees (Category I: no fee; Category II: USD 300; Category III: USD 3000 for a block of three years). Once registered, the investor would be called ‘Registered Foreign Portfolio Investor (RFPI)’, and will be authorized to acquire and sell shares and securities under PIS and take benefit of India’s growth story.

Summary:
The Indian economy is expecting to increase multifold and is poised to become 3rd largest economy by 2020 after China and US. With Development Agenda under Mr. Modi’s leadership, India is set to experience the next bull market of the World.

So, what are you waiting for?

About Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)

Mr. Jigar specializes on NRI Investments and Taxation. He is proud to be one of only 21 CFA Charterholders in India working as consultants. (In 2011, when he became CFA Charterholder, out of 97,173 CFA Charterholders in the World, only 697 Charterholders were in India and only 3% work as consultant; Source: www.newcfa.org). He received his MBA (Finance) from University of Illinois, Chicago, USA, CPA from USA and a Chartered Accountant from India. Jigar has over 15 years of professional experience including more than 4 years with KPMG USA’s Risk Advisory Services. Currently, he provides Wealth Management and taxation consulting serving clients from USA, UK, Americas, Europe, Middle East, Asia, Africa, Australia and India.
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2 Responses to Destination India: How to Invest in World’s next bull market

  1. R Samtani says:

    UK Pensions

    The HRMC allows transfer of UK held pension corpus to countries such as Malta and Gibraltar under a scheme titled QROPS for non-residents of the UK. If a PIO resident in India opts for QROPS what would be the tax implications on the corpus transferred, 30% which is permitted to be drawn on vesting and any draw down on the pension. Would appreciate your feedback.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      I am not aware of the QROPS so may not be right person but if you are an Indian resident, you are taxed on your global income, which I would think would include the QROPS. I suggest you to contact your UK based CA for the same. Thanks.

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