NRI Commodity Trading

More on NRI Trading

With the vastly growing futures market, India has allowed Non-Resident Indians (NRI) commodity trading in the recent past. This means that they can open trading accounts in India and buy and sell the commodities online. Today, in this review, we will discuss NRI commodity trading in detail.

Hopefully, any of your doubts related to NRI Commodity trading will be taken care of. If they don’t, well, feel free to let us know in the comments section below.

NRI Commodity Trading Basics

NRI commodity trading is done through the Portfolio Investment Scheme launched by the Reserve Bank of India. Under this scheme, Non-Resident Indians can trade in securities as permitted by the RBI.

To benefit from this scheme, a Non-resident Indian has to apply at pre-defined bank branches. These branches should have the option to deal with portfolio investment. Any transaction made by the NRI regarding sale or purchase of commodities should be done through the designated branch.

There are currently four banks that offer the option to open a Portfolio Investment Scheme Account. These banks are:

  • YES Bank
  • Federal Bank
  • HDFC Bank
  • Axis Bank

Only an NRO account can be used for trading in commodity derivates by the NRI.

NRO Account

NRO Account basically means an Ordinary Rupee Account. It is a savings account that is created for the use of NRI investors. Any money that is in this account cannot be transferred to any foreign country other than India. If an NRI wants to transfer his/her money, he/she needs to get the consent from the Reserve Bank of India.

If an NRI wants to open an Ordinary Rupee Account, he does not need any prior approval to do so. An NRI has the option to maintain the NRO account as a fixed deposit account, current account, savings account, or a recurring account.


NRI Commodity Trading Requirements

Besides an NRO bank account, an NRI would need the following to start with commodity trading:

Demat Account:

Demat Account is the short form for a Dematerialized account (read more on Dematerialization). It is the account that will hold your stocks digitally. If you are making any trade through the trading account (mentioned below), the stocks you hold in the Demat account will change accordingly. The Demat account should be linked with the NRO account.

Trading Account:

The NRI needs a trading account and a unique account number. The account number is liable for that particular account only. This account is linked to the Demat account. All the investment that goes in the trading account comes from a Demat account and the profits are redirected to the same.

Margin Maintenance:

Before trading, the traders are required to put up a certain percentage of the price of the commodity as margin. An NRI has to maintain the minimum margin needed for his trading account.


NRI Commodity Trading Documentation

Here is the list of documents needed to open an NRI commodity trading account for your reference:

To open an NRO account, the NRI needs to submit the following documents:

  • Proof of Indian address
  • Proof of foreign address
  • Portfolio Investment Scheme Letter (This letter is issued by the RBI)
  • Bank documents indicating the details of the NRO account that the candidate has opened with the bank. These documents include bank’s passbook or bank’s account statement.
  • The cheques issued should have NRO account indication printed on them. If they do not, the NRI would need a verification letter from the bank.
  • The NRI needs a photocopy of KYC documents. This should be attested by authorities permitted of attestation. These include Public Notary, Judge, Magistrate, Court, Indian embassy, Local banker, or the Consulate General of the country where the NRI is staying.
  • Other documents like photographs, photocopy of passport, F&O clearing services agreement, CKYC form, and FATCA form can be needed as well based on the bank’s requirement.
  • If the passport of the candidate is of a country other than India, the candidate would need to submit his PIO/OCI card’s photocopy.

For more information, you can check this detailed review on NRI Trading Account documents.


NRI Commodity Trading Important Points to Consider

Here are some of the most important facts you need to take care of, as an NRI Commodity trading investor:

  • Any NRI trading in the commodity segment isn’t permitted to perform intraday trading.
  • The NRI can only invest on a delivery basis.
  • Short selling is not permitted for NRI commodity trading. However, futures trading is completely allowed.
  • If you started trading commodities as a citizen of India and then later turned into an NRI, you would still continue to hold the assets which you purchased as an Indian Citizen. However, these assets are non-repatriable. This means that you cannot transfer them into your foreign account without the permission of the Reserve Bank of India.
  • In case of traders turning from NRI to Indian residents or Indian residents turning to NRIs, they need to make new trading accounts after the change. If the NRI becomes an Indian citizen, he needs to inform the dealer of the same. He has to open a new Demat account for trading in that case.

It is important to note that the NRI can only trade in derivates that are approved by SEBI in India.

Further, an NRI might have to pay transaction charges for his Demat account linked with the bank account. It is advisable the read the bank’s policy in this regard carefully. You should always pay attention to the fine print.

Also, it is compulsory for an NRI to choose an Indian broker to be able to trade in commodities in India. There has to be at least one broker to execute the NRI’s trades. If an NRI wishes to have more than one, that is allowed as well.

Well, if you wish somebody can help you through all the fuss and assist you in account opening – well, why are we here for?

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