The NRI Money Guide: investing in Indian stocks and mutual funds

India has been one of the world's best-performing large equity markets of the past decade, and few groups want a share of that more than the diaspora that left it. But an overseas Indian cannot invest the way a resident cousin does. A separate layer of rules governs how an NRI buys Indian stocks and funds, and getting the routing wrong can lock up the money or trigger tax that need not have been paid.

Stocks run through the PIS

To buy listed Indian shares, an NRI generally has to use the Portfolio Investment Scheme (PIS), an RBI mechanism that lets non-residents trade on the exchanges through a designated bank account. Every buy and sell must route through that PIS account, which is linked to either an NRE account (if you want the money to stay repatriable) or an NRO account (for India-bound funds). NRIs also face sector caps and cannot trade in certain instruments, such as intraday or some derivatives, the way residents can.

Mutual funds are the easier door

For most NRIs, mutual funds are simpler. They do not require a PIS account: an NRI can invest directly through an NRE or NRO account once the fund house has completed KYC. That makes funds the most common entry point to Indian markets for the diaspora, offering exposure to Indian equity without the machinery and the trading restrictions that come with direct stock dealing.

The American and Canadian wall

There is one large catch, and it falls on the two countries with the biggest NRI populations. Because of the United States' Foreign Account Tax Compliance Act (FATCA) and Canada's parallel reporting rules, many Indian fund houses simply refuse investments from NRIs resident in the US and Canada rather than bear the compliance cost. A minority of asset managers do accept them, usually with extra paperwork and sometimes only with offline, in-person transactions. An NRI in New Jersey or Toronto has a materially shorter menu than one in Dubai or Singapore.

Repatriable or not: choose by your exit

The single most important decision is which account the investment sits behind. Money routed through an NRE account is repatriable: the proceeds, gains included, can be sent back abroad freely. Money routed through an NRO account is non-repatriable in the easy sense, falling under the USD 1 million-a-year ceiling and its tax paperwork covered in Part 2 of this guide. Decide before you invest whether this money is destined to come back out or to stay and fund a life in India, and pick the account accordingly.

What the taxman takes

Indian capital-gains tax applies whether you live in Mumbai or Manchester. On listed equity and equity funds, short-term gains on holdings under twelve months are taxed at 20%, and long-term gains above ₹1.25 lakh a year at 12.5%, following the rates set in the 2024 budget. The difference for NRIs is in the collection: where a resident self-assesses, an NRI usually has the tax deducted at source by the fund or broker before the money reaches them. Whether you can recover part of it depends on the Double Taxation Avoidance Agreement between India and your country of residence, and on filing an Indian return to claim any excess back.

GIFT City: the new offshore door

A newer route sidesteps much of this. India's GIFT City, the International Financial Services Centre in Gujarat, lets NRIs invest in dollar-denominated funds and India-focused vehicles in foreign currency, outside the rupee plumbing of FEMA. It is still a developing option, with a limited but growing set of funds, and it is the subject of a later part of this guide. For NRIs wary of the rupee and the FATCA wall, it is the space to watch.

The short version

Stocks need a PIS account; funds do not. NRE routing keeps your money free to leave; NRO routing ties it to the annual cap. US and Canada residents should check, before getting attached to a fund, whether it will even accept them. And the tax is usually taken before you see the money, so the treaty and the annual return are how you get back anything you overpaid. Get the structure right at the start, and Indian markets are open to the diaspora on terms a resident might envy.

---

Next in the series: buying property in India — the rules, the repatriation, and the traps.