Choosing a Broker and opening Demat Accounts

Investing in Indian stock markets- A guide for NRI’s

For most NRI’s the difficult part about knowing how to go about investing in  Indian stock markets is-finding one place where they can get all the required information. There’s isn’t much complicated process involved in opening a share investment account in India. There are only 3 steps involved:-

  • Step 1 : Get your PAN Card
  • Step 2 : Open an NRE/NRO account.
  • Step 3 : Open demat/trading account.

Step 1: Pan Card

PAN – stands for ‘Permanent Account Number’ and it is just an identification number like your ‘Social Security Number’ in the United States or ‘Social Insurance Number’ in Canada. The PAN card will have your photograph, date of birth and signature on it.PAN is mandatory for everyone who wishes to invest in Indian stock market.

Step 2: NRE/NRO Account.

NRE stands for Non Resident External Account and NRO stands for Non Resident Ordinary account.

How to decide whether you need NRE or NRO account?

Here are some pointers:

  • Decide whether you want to repatriate (take back your profits/principal from share markets) to your country.  If you want to take back the amount then, you should open NRE (Non Resident External) Account and if you do not want to repatriate, open NRO (Non Resident Ordinary) Account.
  • Please remember that as an NRI you can’t operate normal resident savings bank account i.e. all existing resident bank accounts should be converted to NRO accounts once a person becomes NRI. NRO accounts are generally opened by the NRI’s to deposit previous or existing income earned in India in Rupees.
  • So, if you have money flowing in from abroad alone, what you need is an NRE account. But, if you have some source of income in India too, you need to open an NRO account.

Step 3- Open Demat/trading account.

Final step would be to open a demat account- an account to maintain your online purchase and sale of shares. Demat and trading account can be opened with any registered broker. That’s it. Once your trading and demat accounts are open, you can invest in Indian share markets. The entire process of transferring funds and buying/ selling can be done online .

General documents required to open a share investment account:

  • Self attested Copy of Passport & Visa
  • Self attested Copy of Indian Address proof & Overseas Address proof.
  • Self attested Copy of Pan Card
  • Passport size photos.
  • Bank statement for 3 months
  • A cancelled cheque and a cheque for initial investment.

Other important informations:

  • It is always better for an NRI to operate through a power of attorney holder in India. There are many investors who do this and it’s also a lot easier and faster.
  • NRI’s can invest in the Indian stock market under PIS (Portfolio Investment Scheme) which is regulated by RBI.
  • Port folio Investment scheme is a Scheme is regulated by Reserve Bank of India (RBI). RBI monitors the investments made by non-residents so that it can keep a tab on money flowing into India from outside the country.
  • NRI’s are not allowed to trade in the stock market on day to day basis. i.e., you cannot buy and sell on the same day (Day trades or intra day trades as it’s usually called). Day trades are akin to speculation. NRI’s are not allowed to speculate on a day-to-day basis in the markets.
  • You can nominate only one bank account for your stock trading.
  • NRIs can participate in the F & O segment (except currency derivatives) out of INR funds held in India on non-repatriable basis (NRO) subject to the limits prescribed by SEBI. An NRI, who wishes to trade on the F&O segment of the exchange, is required to apply for a custodial participant (CP) code. Thereafter he can open a trading account and start trading in derivatives. Position limits for NRIs shall be same as the client level position limits specified by SEBI from time to time..
  • Individually any NRI or a PIO cannot invest more than 5% stake in any Indian company.

NRE bank account- explained

  • NRE means Non Resident External rupee bank accounts.
  • Balances held in NRE accounts can be repatriated abroad freely. This account is used for depositing money from abroad. An NRE account keeps the money in Indian Rupee.
  • NRE account will let you convert your original foreign currency investment into Indian Rupees for investment in India and then convert it back to the foreign currency. 
  • These accounts cannot be held jointly with residents. But, Joint operation with other NRIs is permitted.
  • A Power of attorney can be granted to residents for operation of accounts. Money once deposited in this account can only be withdrawn for local payments including investments.
  • Interest on deposits in an NRE accounts is tax free in India. The balance lying on the account does not attract wealth tax. Any gifts given from the money lying in this account does not attract gift tax.
  • Once you have the NRE account, you can invest funds to share market.
  • Those who already have NRE bank accounts should check with their bankers to find out whether those are suitable for stock investments. Not all NRE/NRO bank accounts are suitable for investments.
  • Investors should make sure you read all the fine prints regarding charges applicable.


  • A Non-resident Indian (NRI) is a person who is a citizen of India or a person of Indian origin, currently residing outside India. To qualify for NRI status you must:

(1) Reside outside India for more than 182 days per year, and;

(2) Hold Indian citizenship, or;

(3) Be a Person of Indian Origin (PIO) as defined in the Foreign Exchange   Management Deposit Regulations of 2000

Condition no.1 is mandatory and condition 2 OR 3 should be satisfied

  • A PIO (Person of Indian Origin) means a citizen of any country other than Bangladesh or Pakistan, if-

1.  He at any time held Indian passport or

2.  He or either of his parents or any of his grand- parents was a citizen of India or

3.  The person is a spouse of an Indian citizen or a person referred to in 1 or 2         above.


India’s economy is sizzling and is one of the fastest growing in the world. It’s definitely a financial mistake if you don’t invest a part of your hard earned money in India.


How much should you pay for the right portfolio manager?

Hi there,

The rationale for entrusting one’s wealth and savings to a fund manager is simple - Majority of us have zero investment skills. The only ‘safe’ investment that we all know is ‘fixed deposits’. so we nee someone who can create wealth for us- a professional- who’s knows the investment game well.

Now, let’s assume that you’ve found one. Now, how much should you pay for the right fund manager? Are there any regulations for it? How can you make sure that he would perform? Imagine an electrician not doing the work for which he is paid and also causing damage to your electrical equipment.How would you feel?

Here are some guidelines-

Portfolio managers have been asked by SEBI that profits of their schemes be computed only on the ‘high water-mark’ principle. This means the portfolio managers can only charge fee (or share profit) based on the highest value that the portfolio has reached over the life of the investment.

For example, if a portfolio of Rs 10 lakh appreciates to Rs 12 lakh in the first year, a performance fee or profit sharing will be payable on Rs 2 lakh. In the next year if the portfolio value falls to Rs 11 lakh, no performance fee will accrue. If the portfolio value goes up to Rs 13 lakh in the third year, the fee can be charged only on Rs 1 lakh (Rs 13 lakh-Rs 12 lakh). For the fourth year, the ‘high water-mark’ will become Rs 13 lakh.

The regulator has thus ensured that portfolio managers do not charge for loss recovery. However, the ‘high water-mark principle’ will apply only to discretionary and non-discretionary services and not for advisory services.

The market regulator has also prescribed a standardized format of declaring fees and charge. Providers of portfolio management services are now expected to provide details of fees and charges under three scenarios — 20 per cent profit, no profit/no loss and 20 per cent loss — to all clients. This format enables a client to compute the indicative gain or loss on the funds he would be investing for a year.


Annual management fees and profit sharing:

PMS typically works on a 20/2 thumb rule. You pay 2 per cent annual management fees, on top of which you share 20 per cent of profits you make beyond a “Hurdle Rate”. The Hurdle rate is defined at the outset of your agreement terms and till such time this return is obtained by you, you don’t have to share any profit with the service provider. Until then, you share profits on the basis of “Watermark” concept mentioned above.


Apart from these, you also incur the cost of brokerage for each transaction. Brokerage can vary from 0.25 per cent to 0.50 per cent of transaction value. Many PMS’ also take an upfront fee, which is typically about 2 per cent.

Evaluate cost very carefully. Get a clear understanding of how often stocks will be churned in your portfolio as a high level of churn will mean significant cost on brokerage. This will reduce your overall returns. PMS providers have to mandatorily give at least a six-monthly statement but many of them report more frequently. It’s better to get regular updates so that you can track your returns and take corrective actions if required. Some portfolio managers also provide online access to your portfolio.

Exit clause

And finally, look at the exit clauses. PMS’ may charge a fee if you exit a plan before a certain time period. This will be an important consideration if you think you may need the money in case of exigencies.


Some of the leading brokerage firms in India are also offering PMS to clients without any lock in terms and conditions. They charge an annual fund management fee, payable quarterly . There is also a minimum investment of 5 or 10 lakhs depending on the broker’s terms and conditions.

Bye for now !!

have nice day !!

1 Comment

How to select a Portfolio Manager?

Hi there,

As said in the previous lesson,The portfolio manager manages the portfolio on behalf of the client by investing the money in shares and other securities.

You can invest fresh money in Portfolio Management Scheme and the portfolio manager will build a portfolio by deploying that money. Also you can transfer your existing share portfolio to the Portfolio Management Scheme provider. In that case, the portfolio manager will revamp your share portfolio in sync with his investment philosophy and strategy.

Once the Portfolio Management Scheme account is opened, you will be provided with an online access to your portfolio. You can look at where the portfolio manager is investing your money. Also you will be able to generate reports like Portfolio Transaction List, Investment Summary, Performance Analysis, Portfolio Statement and Quarterly capital gain report. As a result, Portfolio Management Scheme relieves you as an investor from all the administrative hassles of investments.

Portfolio Management Scheme Vs Direct Stock Market investment:

You can directly invest in stock market. Then what is the benefit of investing in the stock market through a Portfolio Management Scheme. Investing in share market demands time, knowledge, right mindset, and continuous periodical monitoring. It is really difficult for an individual investor to meet all these demands. But a Portfolio Management Scheme meets these demands at ease. The Portfolio Management Scheme will be managed by a professional expert. It saves a lot of time and effort of the individual investors like you. Hence it is advisable to outsource the stock market investment to a sound Portfolio Management Scheme operator instead of managing it on your own.

Guidelines in choosing the right PM

  • There are all kinds of money managers: good, bad, mediocre, and cheats. Clearly, it’s not worth paying for anything less than the best manager you can find.
  • Look for PMs that are truly unbiased and independent. Advisory companies that have asset management companies as stakeholders may be biased towards their products.
  • Choose an advisory company that offers a holistic approach to investments. There are companies that require their advisors to understand the client’s needs through financial planning before recommending solutions.
  • Regular communication in the form of newsletters, portfolio updates, investment alerts, etc, is a must and this indicates that the company hasn’t forgotten you after you’ve given it business.
  • Look for a company whose representatives are ready to explain product benefits in a jargon-free language, and help you decide what is best for you.
  • Above all, do cross check to ensure that the company you choose to put your trust in has a clean record. The company should be established and should have a good reputation in the market.


The most obvious disadvantage of portfolio management is that the fund manager may make bad investment choices or follow an unsound theory in managing the portfolio. The fees associated with portfolio management are also high. It’s generally a percentage of the annual value of investments. Those who are considering investing in portfolio managers should evaluate carefully. Data from recent decades demonstrates that the majority of portfolio managers failed to perform to expectations.


Trusting a portfolio management advisor is difficult and risky . There are many known cases of churning, where the consultant shifts investment from one fund to another. Some investors restrict this practice by limiting the commission to the consultant depending on his performance; however, if there is a loss, it wouldn’t matter much to them.


What is a portfolio? What’s portfolio management?


Simply put-

If you own more than one asset as investment, you have an investment portfolio.For example you may have 30% of your wealth invested in equities, 30% in debt funds, 20% in gold and the balance in cash- that’s a portfolio of investments.

In the context of shares, you have a portfolio of shares, when you own and manage a group of different shares.for example if you own stocks of Infosys , HLL , Cipla, Tata motors and DLF – what you have is a portfolio of equity investments in diversified sectors.

  • All investments carry risk.  You cannot put all your  money in one asset class . For example , you have 1 million with you and you decide to put the whole money into equities. What would be your fate if the stock crashes?  or if you have invested in fixed income deposits that gives you 8% interest for a long term . The  average inflation rate stays at 8% . Do you think you’ve made a penny ?
  • So, putting all your money in one basket in not a good idea because it exposes you to great risks. The solution to reduce risk is to do the opposite- put all your money in different baskets- so that even if one fails , you get a return from other which may compensate the loss in other. The more you diversify, the less risky your portfolio becomes. This is one of the basic principles in investments.
  • So, the main characteristic of a serious investment portfolio is diversity. It should show a spread of investments to minimize risk.


A portfolio manager is that person who, with his skill and expertise, looks after your investments and manages them for you. PM’s (Portfolio managers) make decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

  • Are they known by any other names?

Yes. They are also called money managers, investment advisors, financial advisors, financial consultants, investment consultants, financial planers etc.. after all, what’s in a name? What matters is what something is, not what it is called. However, there are two types of portfolio managers- discretionary PM and non-discretionary PM.

What’s the difference?

The discretionary PM individually and independently manages the funds of each client in accordance with the needs of the client. So they make the buy-sell decisions without referring to the account owner (client) for every transaction. The manager, however, must operate within the agreed upon limits to achieve the client’s stated investment objectives. Non discretionary PM manages the fund in accordance with the directions of the client.

  • Is there an agreement between you and PM?

Yes. The portfolio manager, before taking up an assignment of management of funds on behalf of the client, enters into an agreement in writing with the client clearly defining the relationship and setting out their mutual rights, obligations and liabilities relating to the management of funds containing details as specified in schedule IV of the SEBI (portfolio managers) Regulations, 1993.


Yes. The PM is required to accept fund or securities having a minimum worth of 5 lakhs rupees from the client while opening the account for the purpose of rendering portfolio management services to the client.

  • How much can a PM charge from you?

The SEBI (portfolio managers) regulations, 1993, have not prescribed any scale of fee to be charged by the portfolio manager to his clients. However, the regulations provide that they can charge a fee as per the agreement wit the client for rendering their services. The fee so charged may be a fixed amount or a return based fee or a combination of both. The PM shall take specific permission from the client for charging such fees.

    Can a PM invest in derivatives (futures and options) for his client?

Yes. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the client’s portfolio derivatives should not exceed his portfolio funds placed with the PM.

  • What are the disclosure requirements of PM to their clients?

The PM provides to the client the disclosure document at least 2 days prior to entering into an agreement with the client. The disclosure document contains the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the PM directly or indirectly, portfolio risks, complete disclosures in respect of transactions with related parties as per the standards issued by the ICAI in this regard, the performance of the PM and the audited financial statements for the last 3 years.

  • Is premature withdrawal of Funds/securities by an investor allowed?

The funds or securities can be withdrawn or taken back by the client before the maturity of the contract. However, the terms of the premature withdrawal would be as per the agreement between the client and the portfolio manager.

  • Can a Portfolio Manager impose a lock-in on the investor?

Portfolio managers cannot impose a lock-in on the investment of their clients. However, a portfolio manager can charge exit fees from the client for early exit, as laid down in the agreement.


Portfolio manager cannot offer/ promise indicative or guaranteed returns to clients.

  • Where can an investor look out for information on portfolio managers?

Investors can log on to the website of SEBI for information on SEBI regulations and circulars pertaining to portfolio managers. Addresses of the registered portfolio managers are also available on the website.

  • How can the investors redress their complaints?

Investors would find in the Disclosure Document the name, address and telephone number of the investor relation officer of the portfolio manager who attends to the investor queries and complaints. The grievance redressal and dispute mechanism is also mentioned in the Disclosure Document. Investors can approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned portfolio manager and follows up with them.

Investors may send their complaints to: Office of Investor Assistance and Education, Securities and Exchange Board of India,
SEBI Bhavan Plot No. C4-A, ‘G’ Block, Bandra-Kurla Complex, Bandra (E), Mumbai – 400 05

That completes portfolio and portfolio managers. Our next lesson will detail about the qualities that you should look for in a PM and how to go about selecting a PM.