Problems with Opening an NRI Demat Account
A lot of NRIs don’t realize how complicated setting up a demat account is and think that setting it up will be as easy as starting a resident account. In fact, big problems are caused by rules and regulations, paperwork problems, banking connections, and constant compliance. This piece talks about the main problems and downsides of opening an NRI Demat Account. It does this to give potential investors a realistic view so they can weigh the work against the benefits and decide if the process fits with their goals.
KYC and a lot of paperwork are needed.
The large amount of strict paperwork that needs to be done is one of the biggest problems. NRIs need to send in:
- Passport that has pages for a legal visa, if needed
- Proof of an address in another country, like a utility bill, bank account, or driver’s license from the home country.
- A PAN card and an OCI or PIO card, if needed
- Recently taken pictures
- FATCA/CRS self-certification forms
PIS compliance and complicated banking links
An NRI Demat Account needs to be tied to an NRE or NRO bank account. Under the Portfolio Investment Scheme (PIS), you need RBI permission to trade on a delivery basis. To get PIS permission, you must:
- Sending Form A to a certain branch
- This process can take anywhere from two to four weeks.
- Keeping different NRE and NRO PIS accounts for investments that can be returned and investments that can’t be returned
Longer times to open an account
NRI accounts usually take 15–45 days to open, but resident accounts can be opened in 1–2 days with paperless Aadhaar-based KYC. It can take longer if papers are missing or PIS approval is delayed. Things that cause deadlines to get longer are:
- Verification of international documents
- Time zone differences make it harder for customer service to respond
- Processing FATCA/CRS reports by hand
- RBI gives go-ahead for PIS route
Costs and fees that are higher
Most of the time, NRI Demat Accounts cost more than local accounts. Some common extra or higher costs are:
- More expensive yearly maintenance fees (AMC)
- High brokerage fees (especially for PIS deals)
- Fees for using different currencies
- The costs of processing return
- Fees for verification of documents or courier services
Limits on the types of investments and trading options
NRIs can invest in most traded stocks and mutual funds, but they can’t do everything they want to:
- You can’t trade during the day; the square-off has to happen on the same day.
- Some derivative goods are hard to get or not available at all.
- Not being able to short sell or do certain SME IPOs
The chance of rule change
It is possible for RBI/SEBI circulars to change the rules for non-resident Indians, sometimes adding new limits or compliance requirements overnight. Updates to FATCA filing rules, PIS repatriation rules, and mutual fund investment limits are some examples from the last few months. These kinds of changes can mess up current portfolios or mean that documentation needs to be updated quickly.
