Monday 7 May 2012
By B Gopkumar, Executive Vice President and Head (Broking), Kotak Securities
“The duty on Gold has just been doubled, looks like we NRIs can only look forward to investing in bank deposits now”. This statement from my
NRI brother got me thinking that how come he never talks about investing in equities in India. I probed him further and realized that the last year was particularly good for NRIs investing in debt. Not only was the dollar at an all-time high, the opening up of deposit rates by RBI gave them an option to park their NRE funds for rates as high as 9.60% tax free. Which investor would not want to lap up such an opportunity?
However, while NRE fixed deposits may be the best option for debt investors, what worries me is the overall trend.
NRI flows are largely restricted to Bank Deposits in India, with NRI deposits being as high as 5% to 6% of total deposits. Now compare this to an average 1.5% to 2% of NRI investments through Mutual funds or about 2% of volumes on the stock exchanges by NRIs and we realize that most NRI’s are not participating in one of the best performing asset class in India over long term. And more often than not, the reason simply is the lack of awareness of the process.
To bridge this gap, here is a quick checklist.
Regulations: The regulators permit NRIs to invest in most listed scripts (except for some restricted list by RBI) through the Portfolio Investment Scheme route. This means that the only additional requirement for an NRI investor is to open a designated PINS bank account for investing in Equity markets. A PAN card is mandatory to open an account. Further, NRIs aren’t allowed to do intra-day trading or trade on leverage.
Choosing your service providers: Since a designated bank account is mandatory, an investor needs to carefully choose the stock broker and the bank. Opting for an online account is the most convenient. Not only can one transact at their own time (since time zones differ), but also get complete control over fund transfers and transactions. Some other points to consider should be branch service network, facility to place after-market orders, option to call and trade or speak to a dedicated equity dealer if required, access to equity research and dedicated customer service for NRI clients.
Ideally, your online
trading account should not be restricted to only equity markets. Access to Mutual funds, IPOs, listed bonds and debentures is a must to diversify your investments. Apart from normal web based platforms, reputed brokers also provide specialized tools and applications to track and analyze the markets. These tools offer technical charts and details of specific stocks. And of course, with all of us addicted to our mobiles and iPads, a trading platform on these is a must. A mobile trading application can help investors track their portfolios better and ensure that no investment opportunity is missed even if you are trotting the globe.
Opening an account: This is what probably scares people the most. However, if the customer carefully chooses the broker, this should be a seamless process as most reputed brokers have tie-ups with banks to open the PINS accounts. Additionally, regulations permit NRIs to open accounts even when they are not in India provided the documents are attested by designated authorities abroad. The regulators have further simplified the process recently by significantly reducing the number of signatures required to open an account. Thus, it should not really take more that 8-10days to get your account in place.
Investing: If the chosen stock broker provides access to research reports, then based on the risk profile investors should invest in a basket of quality companies across sectors. New investors should slowly scale up their investments and ideally start by investing in bluechip companies. If you are not an expert or are unsure about which stock to buy, then consulting an equity dealer is not a bad idea. Another option for new investors is to consider investing in Index Exchange Traded Funds. ETFs not only offer the most efficient way of investing in equities but are also the best tool for passive investors looking to invest in India.
Monitoring and review: Most Online accounts offer a portfolio tracker to monitor your portfolio, returns and profits. Ensure that you review your portfolio atleast once a quarter/six months and, if required, make suitable changes to your investment strategy.
I have ensured that my brother has now started investing in equities. I only hope other NRIs too realize the potential of Indian economy and start looking at shifting some of those billions in Deposits to equities.
