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The complete guide to derivatives trading for NRIs

Derivatives are a lucrative investment option for resident Indians and Non-Resident Indians alike. Yet, they can sometimes be a little confusing. In this segment, let’s go through what derivatives are and how you can invest in them as an NRI.

Introduction:

What are Derivatives?

A derivative is an instrument that derives its value from an underlying asset. Think of derivatives as curd, which is a by-product of milk. Without milk, you wouldn’t have curd. Similarly, without an underlying asset, derivatives cannot exist. Underlying assets can be stocks, a stock market index, commodities, bullion, currency, or anything else.

Derivatives are unique products which can help with managing risks in your investment portfolio. At the same time, they can be used to take advantage of arbitrage or speculative opportunities.

In India, there are essentially two derivatives that people, including NRIs, can invest in. These are:

Futures

Futures are contractual agreements to buy or sell the underlying security on a specified date at a pre-decided price.  There are two kinds of futures derivatives available:

  • Index Futures
  • Stock Futures

 

Options

Options are derivative instruments that give a buyer the option but not an obligation to buy or sell a security at a predetermined price on a particular date. Once again, the two types of options available are:

  • Index Options
  • Stock Options

 

Are all NRIs eligible to trade in Derivatives?

Yes. All NRIs can trade in derivatives subject to certain norms as prescribed under the Foreign Exchange Management Act (FEMA) and as mandated by the Reserve Bank of India, Securities and Exchange Board of India, National Stock Exchange, Bombay Stock Exchange and other regulatory bodies from time to time.

Also Read: NRI Demat Account Online Procedures & Charges

What are the derivative instruments offered to NRIs?

NRIs are offered all the above types of derivative instruments, which are:

  • Index Futures
  • Stock Futures
  • Index Options
  • Stock Options

 

Are NRIs allowed to use Shares as Margin for Derivatives trading?

No. Shares as a margin facility is not available to NRI customers

How can NRIs trade in Derivatives?

As per regulatory guidelines, NRIs can trade in derivatives only with their NRO account on a non-repatriable basis. NRIs can trade in derivatives through their NON-PINS NRO account.

What are the documents required as proof for derivatives registration?

  • NRI derivatives form
  • Verified copies of PAN
  • Valid passport copy
  • Copy of documents indicating financial details is given below (any one):

     

    • Copy of Latest Income Tax Return acknowledgment (Latest IT Return)
    • Copy of Latest Annual Accounts
    • Latest Form 16
    • Copy of Latest net worth certificate
    • Latest Salary Slip
    • Copy of Bank account statement for the previous 6 months (this will be from the date of inward. Also, you don’t have to give a separate copy of bank statement if the same has been given as address proof and meets the 6-months condition).
    • Copy of demat account holding statement.

Also Read: NRI Investments in NCDs: Eligibility Rules and Tax Implications

Hence to trade in derivatives market in India, NRIs have to open NRO Non PINS account and submit the above documents. The existing customers of a broking house may need to submit less documents as they already have an account and investors need to check with their respective broker. 

Disclaimer – ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. Certain products and features are restricted for NRI Customers based on local laws applicable to select jurisdictions. The contents herein mentioned are solely for informational and educational purpose.

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