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Equity Investments in India for US & Canada NRIs

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Ramnath Rao
Ramnath Rao

This document provides an overview of investment options for NRIs from the USA and Canada wanting to invest in Indian equities. It discusses that NRIs can invest in mutual funds and direct equities through certain fund houses and the Portfolio Investment Scheme respectively, but there are some limitations and regulations like FATCA. Portfolio management services are also an option for NRIs to invest in direct equities. The document outlines various fees and Indian tax liabilities associated with different investment avenues. It also describes the services provided by De Emerald such as account setup assistance, tax filing and coordination with service providers.

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De Emerald Partners Private & Confidential NRI Investing in India Private & Confidential
De Emerald Partners Private & Confidential Executive Summary ¨ Overseas Citizens of India (OCI) and Persons of Indian Origin (PIO) are treated on par with Non Resident Indian (NRIs) in all transactions barring the purchase of agricultural or plantation property. ¨ This means an OCI and PIO can invest in Bank deposits, Indian mutual funds, real estate, gold, portfolio management services and direct equities ¨ For NRIs (excluding from USA & Canada) investing in Indian MFs’ is as simple as it is for the Indian investors. They just need to comply with the norms set by the country they are based in ¨ NRIs are allowed to invest in mutual funds in India on a repatriable or non-repatriable basis subject to regulations prescribed under the Foreign Exchange Management Act (FEMA) ¨ For NRIs in USA & Canada investing in Mutual Funds has limitations ¨ NRIs can invest in Indian stock markets under the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI). Under this scheme, an NRI has to open an NRE/NRO account with an RBI- authorised Indian bank. ¨ An individual can open only one PIS account for buying and selling stocks. NRIs are not allowed to do intraday trading or Short selling in India. ¨ NRIs can only trade on delivery basis. NRIs need to own the stocks before they sell ¨ All investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India ¨ This document focuses the options for NRIs from USA & Canada desiring to invest in Indian Equities. Investing in India's long-term success story is an easily available option to NRIs . All an NRI needs is a bank account and other documents which even a resident investor will require to submit.
De Emerald Partners Private & Confidential Investment Options for NRIs § Bank Fixed Deposits § Real Estate § Mutual Fund § Direct Equity § Investments in Bonds/Government Securities § Certificate of Deposits § National Pension Scheme This document focuses on investments in Mutual Funds and Direct Equity
De Emerald Partners Private & Confidential Mutual Fund Investments ¨ Most US-registered mutual fund companies which have India operations do not accept investments from Indians living in the US as they are bound by the cap on the number of non-resident investors they can take ¨ MF companies taking investments from NRIs from USA & Canada are subject to the regulatory constraints - SEC, Foreign Account Tax Compliance Act (FATCA) regulations ¨ FATCA makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non- resident Indians) to the US & Canada Government ¨ Regulators require fund managers to be registered with them if they are handling more than a certain number of accounts of their residents. i.e. the Dodd-Frank Act of the US requires fund managers handling over 15 US-based investors to be registered with the US regulators and follow their rules ¨ Most US-registered mutual fund companies which have India operations do not accept investments from Indians living in the US as they are bound by the cap on the number of non-resident investors they can take ¨ To avoid dual regulators and multiple compliance regulations , many fund houses have stopped taking investors from these countries
De Emerald Partners Private & Confidential Mutual Funds Investments The following fund houses in India are accepting investments from NRIs based in US and Canada : § Birla Sun Life Mutual Fund § SBI Mutual Fund § UTI Mutual Fund § ICICI Prudential Mutual Fund § DHFL Pramerica Mutual Fund § L&T Mutual Fund § PPFAS Mutual Fund § Sundaram Mutual Fund Each of these fund houses may have a different condition or an additional requirement that may imposed § Some fund houses accept only paper application investments with declaration signed by investor – ICCI, Birla, SBI § Almost all the fund houses require an additional document, such as a declaration, signed by the investor. § Accepts investment only when the investor is physically present in India § Allows investment only in close-ended funds - L&T Given the facts, investments in MFs by NRIs of USA & Canada is a bit onerous and has limitations
De Emerald Partners Private & Confidential Direct Equities Investment § NRIs can invest in Indian stock markets under the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI) § PIS—a scheme of Reserve Bank of India—enables NRIs and OCBs to purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange by routing such purchase/sale transactions through their NRI Savings Account with a designated bank branch § Aggregate investment by NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company and a PIS account helps the RBI ensure that the NRI holding in an Indian company does not cross that limit § Each transaction through a PIS account is reported to the RBI § Shares issued through initial public offerings (IPOs) are not covered under the PIS. It is the responsibility of the issuing company to inform the RBI the number of shares it is allotting to NRIs Investing through the PIS route, though involves a bit of one-time documentation, it is relatively an easier process.
De Emerald Partners Private & Confidential Portfolio Management Services • Portfolio Management Scheme popularly known as PMS are specialized investment vehicle for lump sum investments. The portfolio manager invests the money in shares and other securities and manages the portfolio on behalf of the client • One can invest fresh money in PMS and the portfolio manager will construct a portfolio by deploying that money • Alternatively one can transfer his/her existing shares portfolio to the Portfolio Management Scheme. The portfolio manager will revamp the portfolio in sync with his investment philosophy and strategy • Once the Portfolio Management Scheme account is opened, the portfolio manager takes investment decisions and has full discretionary power to manage investor’s portfolio, i.e. he can buy/sell stocks without consulting with the investor • The client can look at where the portfolio manager is investing client’s money. Also one will be able to generate reports like Investment Summary, Portfolio Transaction List, Performance Analysis, Portfolio Statement and Quarterly capital gain report. Investing in Direct Equities thru the PMS route is a good option for NRIs from US and Canada
De Emerald Partners Private & Confidential Illustrative PMS Fees Fees Option A Option B Option C Fixed Management Fee 1.50% p.a. Charged quarterly @0.375% on average NAV 2.00% p.a. Charged quarterly @0.500% on average NAV 3.00% p.a. Charged quarterly @0.750% on average NAV Profit Sharing Plus 15% on profit generated p.a. above Hurdle rate Plus 10% of profit generated p.a. above Hurdle rate No profit sharing – but there could be a lock- in of minimum 3 years In addition to the above, there will be additional charges to cover costs i.e. Custodian fees, Fund accounting, R&T Fees, Depository charges, Franking, Notarization, Brokerage, Taxes not limited to GST, Securities Transaction Tax and other Statutory levies, Audit fees and legal fees which would be charged from the Client Account , based on actual expenses incurred. Approximately all these costs can be estimated at about 1% of the portfolio. • Minimum Investment – INR 50.00 Lakhs
De Emerald Partners Private & Confidential Indian Income Tax Liability Income Tax Equity Funds/Stocks Debt Funds Short-term Capital Gains Tax 15% As per tax slab Long-term Capital Gains Tax 10% over Capital gains of INR 100,000 • 10% without indexation, • 20% with indexation Dividend Distribution Tax 10% • 25% on liquid funds • 12.5% on other debt funds
De Emerald Partners Private & Confidential De Emerald Services ü De Emerald Service includes the following § Ownership and Coordination with all Service providers for setting up and opening account – i.e PMS providers, Banks, Custodians, Broking houses § Preparing net-worth of the client - To understand the current Assets ownership and Liabilities and to decide on the future asset allocations § Goal-based investment approach - Different goals would have different time horizons and hence impact the asset allocation § Risk-profiling to devise proper asset allocation strategy § Annual Income-tax filing with Indian Tax Authorities § Providing Indian Income tax details and Coordinating with the US Tax Consultants ü Follow-on regular filing of Indian Income Tax returns
De Emerald Partners Private & Confidential Thank You

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Equity Investments in India for US & Canada NRIs

  • 1. De Emerald Partners Private & Confidential NRI Investing in India Private & Confidential
  • 2. De Emerald Partners Private & Confidential Executive Summary ¨ Overseas Citizens of India (OCI) and Persons of Indian Origin (PIO) are treated on par with Non Resident Indian (NRIs) in all transactions barring the purchase of agricultural or plantation property. ¨ This means an OCI and PIO can invest in Bank deposits, Indian mutual funds, real estate, gold, portfolio management services and direct equities ¨ For NRIs (excluding from USA & Canada) investing in Indian MFs’ is as simple as it is for the Indian investors. They just need to comply with the norms set by the country they are based in ¨ NRIs are allowed to invest in mutual funds in India on a repatriable or non-repatriable basis subject to regulations prescribed under the Foreign Exchange Management Act (FEMA) ¨ For NRIs in USA & Canada investing in Mutual Funds has limitations ¨ NRIs can invest in Indian stock markets under the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI). Under this scheme, an NRI has to open an NRE/NRO account with an RBI- authorised Indian bank. ¨ An individual can open only one PIS account for buying and selling stocks. NRIs are not allowed to do intraday trading or Short selling in India. ¨ NRIs can only trade on delivery basis. NRIs need to own the stocks before they sell ¨ All investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India ¨ This document focuses the options for NRIs from USA & Canada desiring to invest in Indian Equities. Investing in India's long-term success story is an easily available option to NRIs . All an NRI needs is a bank account and other documents which even a resident investor will require to submit.
  • 3. De Emerald Partners Private & Confidential Investment Options for NRIs § Bank Fixed Deposits § Real Estate § Mutual Fund § Direct Equity § Investments in Bonds/Government Securities § Certificate of Deposits § National Pension Scheme This document focuses on investments in Mutual Funds and Direct Equity
  • 4. De Emerald Partners Private & Confidential Mutual Fund Investments ¨ Most US-registered mutual fund companies which have India operations do not accept investments from Indians living in the US as they are bound by the cap on the number of non-resident investors they can take ¨ MF companies taking investments from NRIs from USA & Canada are subject to the regulatory constraints - SEC, Foreign Account Tax Compliance Act (FATCA) regulations ¨ FATCA makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non- resident Indians) to the US & Canada Government ¨ Regulators require fund managers to be registered with them if they are handling more than a certain number of accounts of their residents. i.e. the Dodd-Frank Act of the US requires fund managers handling over 15 US-based investors to be registered with the US regulators and follow their rules ¨ Most US-registered mutual fund companies which have India operations do not accept investments from Indians living in the US as they are bound by the cap on the number of non-resident investors they can take ¨ To avoid dual regulators and multiple compliance regulations , many fund houses have stopped taking investors from these countries
  • 5. De Emerald Partners Private & Confidential Mutual Funds Investments The following fund houses in India are accepting investments from NRIs based in US and Canada : § Birla Sun Life Mutual Fund § SBI Mutual Fund § UTI Mutual Fund § ICICI Prudential Mutual Fund § DHFL Pramerica Mutual Fund § L&T Mutual Fund § PPFAS Mutual Fund § Sundaram Mutual Fund Each of these fund houses may have a different condition or an additional requirement that may imposed § Some fund houses accept only paper application investments with declaration signed by investor – ICCI, Birla, SBI § Almost all the fund houses require an additional document, such as a declaration, signed by the investor. § Accepts investment only when the investor is physically present in India § Allows investment only in close-ended funds - L&T Given the facts, investments in MFs by NRIs of USA & Canada is a bit onerous and has limitations
  • 6. De Emerald Partners Private & Confidential Direct Equities Investment § NRIs can invest in Indian stock markets under the Portfolio Investment Scheme (PIS) of the Reserve Bank of India (RBI) § PIS—a scheme of Reserve Bank of India—enables NRIs and OCBs to purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange by routing such purchase/sale transactions through their NRI Savings Account with a designated bank branch § Aggregate investment by NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company and a PIS account helps the RBI ensure that the NRI holding in an Indian company does not cross that limit § Each transaction through a PIS account is reported to the RBI § Shares issued through initial public offerings (IPOs) are not covered under the PIS. It is the responsibility of the issuing company to inform the RBI the number of shares it is allotting to NRIs Investing through the PIS route, though involves a bit of one-time documentation, it is relatively an easier process.
  • 7. De Emerald Partners Private & Confidential Portfolio Management Services • Portfolio Management Scheme popularly known as PMS are specialized investment vehicle for lump sum investments. The portfolio manager invests the money in shares and other securities and manages the portfolio on behalf of the client • One can invest fresh money in PMS and the portfolio manager will construct a portfolio by deploying that money • Alternatively one can transfer his/her existing shares portfolio to the Portfolio Management Scheme. The portfolio manager will revamp the portfolio in sync with his investment philosophy and strategy • Once the Portfolio Management Scheme account is opened, the portfolio manager takes investment decisions and has full discretionary power to manage investor’s portfolio, i.e. he can buy/sell stocks without consulting with the investor • The client can look at where the portfolio manager is investing client’s money. Also one will be able to generate reports like Investment Summary, Portfolio Transaction List, Performance Analysis, Portfolio Statement and Quarterly capital gain report. Investing in Direct Equities thru the PMS route is a good option for NRIs from US and Canada
  • 8. De Emerald Partners Private & Confidential Illustrative PMS Fees Fees Option A Option B Option C Fixed Management Fee 1.50% p.a. Charged quarterly @0.375% on average NAV 2.00% p.a. Charged quarterly @0.500% on average NAV 3.00% p.a. Charged quarterly @0.750% on average NAV Profit Sharing Plus 15% on profit generated p.a. above Hurdle rate Plus 10% of profit generated p.a. above Hurdle rate No profit sharing – but there could be a lock- in of minimum 3 years In addition to the above, there will be additional charges to cover costs i.e. Custodian fees, Fund accounting, R&T Fees, Depository charges, Franking, Notarization, Brokerage, Taxes not limited to GST, Securities Transaction Tax and other Statutory levies, Audit fees and legal fees which would be charged from the Client Account , based on actual expenses incurred. Approximately all these costs can be estimated at about 1% of the portfolio. • Minimum Investment – INR 50.00 Lakhs
  • 9. De Emerald Partners Private & Confidential Indian Income Tax Liability Income Tax Equity Funds/Stocks Debt Funds Short-term Capital Gains Tax 15% As per tax slab Long-term Capital Gains Tax 10% over Capital gains of INR 100,000 • 10% without indexation, • 20% with indexation Dividend Distribution Tax 10% • 25% on liquid funds • 12.5% on other debt funds
  • 10. De Emerald Partners Private & Confidential De Emerald Services ü De Emerald Service includes the following § Ownership and Coordination with all Service providers for setting up and opening account – i.e PMS providers, Banks, Custodians, Broking houses § Preparing net-worth of the client - To understand the current Assets ownership and Liabilities and to decide on the future asset allocations § Goal-based investment approach - Different goals would have different time horizons and hence impact the asset allocation § Risk-profiling to devise proper asset allocation strategy § Annual Income-tax filing with Indian Tax Authorities § Providing Indian Income tax details and Coordinating with the US Tax Consultants ü Follow-on regular filing of Indian Income Tax returns
  • 11. De Emerald Partners Private & Confidential Thank You