India continues to be a hotspot for profitable investment opportunities for NRIs as one of the economies with the fastest growth in the world. Over the years, regulations governing foreign and NRI investments have been loosened, permitting simpler capital inflow. As long as they follow the rules set forth by the Foreign Exchange Management Act (FEMA), NRIs are permitted to invest in listed shares on the stock market, ETFs, mutual funds, debentures, NCDs, and other securities. Can an NRI purchase Indian unlisted shares? Yes is the clear-cut response.
From the standpoint of the Indian Foreign Exchange Management Act 1999 Regulation, the investment made by an NRI is a "foreign investment." Similar to listed shares, unlisted shares in India have drawn many NRI investors as it provides investors with a strong return. Unlisted shares also carry lower risks because they are not governed by the Stock Exchange of India. Unlisted shares must first be understood in order for an NRI to comprehend investing in unlisted companies in India.
Securities or financial instruments that are not listed on the stock market are known as unlisted shares. Unlisted shares are also referred to as OTC securities since they are traded on over-the-counter (OTC) markets. Smaller or newer companies typically decide against trading on any public stock exchanges because they don't match specific criteria like market size, listing fee, etc.
Attractive returns are one of the primary reasons investors purchase unlisted shares. To entice investors, companies offer these shares at a discount.
If NRIs desire to invest in Indian unlisted companies, they can choose from a variety of investment alternatives, such as:
Pre-IPO companies are businesses that are not listed on the stock exchange. You can invest in these pre-IPO businesses as an NRI without the assistance of exchange houses. You'll receive a deposit of the share into your NRI Demat Account. You can make investments in pre-IPO companies by getting in touch with an unlisted share broker.
In order to achieve exponential development and greater investment returns, NRIs might also invest in start-up businesses. Although investing in start-ups has a higher risk, the potential return on investment is very high.
ESOPs (Employee Stock Ownership Plans) are yet another excellent technique to buy unlisted shares in India. To connect with the employees of various companies who wish to sell their shares at a given price, NRIs might get in touch with unlisted share brokers in India.
The KYC procedure has made investing in unlisted shares in India easier for NRIs. A PAN card, an NRI Demat account, and other important documents must be presented at the time of investment.
There are two types of bank accounts for NRIs:
The tax implications for NRIs are shown below based on long-term capital gains and short-term capital gains:
Short-Term and Long-Term Capital Gains
NRIs are permitted to make non-repatriation investments in unlisted shares in India. However, they can also purchase shares on a repatriation basis; however, they must notify the RBI of the transaction. Only if the unlisted shares are sold within two years will the gain on them be deemed short-term, and the income will be taxed at the marginal rate.
Non-resident Indians must abide by the rules of the Foreign Exchange Management Act (FEMA) in order to invest in Indian unlisted firms.
Pre-IPO companies are private businesses that are not currently listed but may do so in the future. Without the intervention of any exchange, you can invest in these pre-IPO companies. Even though the trade is off-the-record, the shares will still be deposited in your NRI Demat account. Investors and traders can purchase and sell shares of a company in pre-IPO marketplaces before the company is listed on stock exchanges.
Through middlemen like investment companies that enable the exchange of unlisted shares, you can purchase unlisted shares. These shares might be listed at any time, and you could sell them for a profit. You cannot, however, sell them before six months have passed since the date of listing.
Finding a reputable intermediary who concentrates solely on NRI investment in India and can assist you in successfully completing the transaction and lowering the risk of capital loss is essential because investing in unlisted shares has a number of dangers.
Shares that are not openly traded on the stock market are known as unlisted shares. Common stocks, corporate bonds, penny stocks, government securities, and derivative products are all examples of unlisted shares. In addition to other documentation, NRIs who want to invest in unlisted shares in India require a PAN card and an NRI Demat account.
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