Non-residing Indians (NRIs) are the Indian citizens who live abroad and Person of Indian Origin (PIO) refers to the foreign citizen who was born in India, has Indian parents, grandparents, or an Indian spouse.
Any Indian citizen living abroad who wants to start investing in the Indian capital market must -
NRE account- It is the external savings bank account for NRIs. It is known as Non-Resident External Account. It is a regular account for NRIs same as an ordinary savings account. Any funds available in NRE account can be used in any country outside India. These funds can be converted into any foreign currency and can be used for everyday purposes.
NRO account- It is the ordinary account for NRIs. It is known as a Non-resident Ordinary account. Because it is an ordinary account, like a normal savings account, funds available in NRO Bank account cannot be taken to another country from India. This means funds lying in the NRO account can be useful only for transactions in India. However, funds to the extent of 1 milion dollars can remitted abroad by obtaining CA certificate in Form 15 CA/CB, once in any financial year.
Funds can be easily transferred from NRE to NRO Bank account, but no funds can be transferred from NRO to NRE account.
NRIs are allowed to directly invest in the units of Mutual funds, debentures of Indian companies, and shares. NRIs can also create their investment portfolio by purchasing shares/debentures of the Indian companies through stock exchanges. Such facilities are available on both repatriation and non-repatriation basis.
According to section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased while being an Indian resident. It is essential to transfer those securities to the Non-resident ordinary (NRO) account.
RBI has advised banks to revise such accounts as resident accounts once the account holder returns to India.