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What is Stock/Equity Investment?

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains. Typically, equity holders receive voting rights, meaning that they can vote on candidates for the board of directors investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the yield gap or yield ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.

What is Equity Market/Exchange?

The Equity market also known as the stock market is where the listed securities are traded in the secondary market. This is one of the most vital areas of a market economy, as investors have the opportunity to own a slice of ownership in a company with the potential to realize gains based on its future performance. The price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood.

What is Market Value?

In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Equity stock valuations, which are often much higher, are based on other considerations related to the business' operating cash flow, profits and future prospects; some factors are derived from the accounting statement. See Valuation (finance) and specifically #Valuation overview; also Intrinsic value (finance) #Equity.

Note that while accounting equity can potentially be negative, market price per share is never negative since equity shares represent ownership in limited liability companies. The principle of limited liability guarantees that a shareholder's losses may never exceed his investment.

What is Clearing and Settlements?

Clearing carries out the clearing and settlement of the trades executed in the exchange. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period, nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities.


A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors (Fund Managers). On the negative side, investors in a mutual fund must pay various fees and expenses.

Primary structures of mutual funds include open-end funds, unit investment trusts, and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange. Some close- ended funds also resemble exchange traded funds as they are traded on stock exchanges to improve their liquidity. Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index, or actively managed funds. Hedge funds are not mutual funds; hedge funds cannot be sold to the general public as they require huge investments. They are more risky than mutual funds and are subject to different government regulations.

Mutual Funds are bought and sold in Units which are allocated to investors basis the proportion of their investments and value of these units in the overall fund value. It is tracked as Net Asset Value(NAV) which is released on a daily manner. Mutual Funds are governed by the industry association known as Association of Mutual Funds in India (AMFI) and The Securities and Exchange Board Of India(SEBI) regulates the Mutual Funds industry. There are around 50 different Mutual Fund companies and more than 12000 Mutual Fund Schemes run by these companies.

What is the applicable tax on Mutual Fund (MF)?

Long term Capital gains tax (LTCG) is applied to equity MF when held for more than a year. It is taxed at 10% for gains withdrawn exceeding ₹1 L in a financial year. MF gains withdrawn up to ₹1 lakh in a financial year are exempt from Tax.

Short Term Capital gains tax (STCG) is applied to equity MF when held for less than a year and the rate is 15%.

SiRoSa would provide you consolidated capital gains statement to assist you in your tax computation.

What are the Advantages and Disadvantages of MF investment for a retain inventor?

  • Increased diversification: A fund diversifies holding many securities. This diversification decreases risk.
  • Daily liquidity: Shareholders of open-end funds and unit investment trusts may sell their holdings back to the fund at regular intervals at a price equal to the net asset value of the fund's holdings. Most funds allow investors to redeem in this way at the close of every trading day.
  • Professional investment management: Open-and closed-end funds hire portfolio managers to supervise the fund's investments.
  • Ability to participate in investments that may be available only to larger investors. For example, individual investors often find it difficult to invest directly in foreign markets.
  • Service and convenience: Funds often provide services such as check writing.
  • Government oversight: Mutual funds are regulated by a governmental body.
  • Transparency and ease of comparison: All mutual funds are required to report the same information to investors, which makes them easier to compare to each other.
Disadvantages: Mutual funds have disadvantages as well, which include:
  • Fees
  • Less control over timing of recognition of gains
  • Less predictable income
  • No opportunity to customize

Is there a lock in period for MF investments?

Lock in period is the time during which an investor can not withdraw/redeem his/her MF investments. Some MF schemes like ELSS/Tax saving funds come with a lock-in period of 3 years as mandated by the government.

What is exit load? Is it applied to my MF investments?

Some MF schemes have an exit load, and some schemes don’t. The schemes which have an exit load will incur a small charge if they redeem/withdraw their investments before the stipulated time.

What are various options in MF schemes? What are growth option, dividend option?

MF investment schemes are normally available in 2 broad categories, growth and dividend option. Within the dividend option, payout or reinvestment options are available. In the growth option of Mutual fund schemes, profits made by the scheme are invested back into it. This results in the net asset value (NAV) of the scheme rising over time. When the scheme gains, the NAV rises, and in the case of a loss, it goes down. The only option to realise the accrued profit in the growth option is to sell or redeem your investments. The dividend option can either re-invest the accrued profit (dividend reinvestment option) or pay out the accrued profit (dividend payout option). Profits or dividends are distributed to the investor from time to time depending on the profits made over the stipulated time. Dividends are declared only when the scheme makes a profit, and it is at the discretion of the fund manager. The dividend is paid from the NAV of the unit.

What are open ended and closed ended funds?

Open-ended funds are those which can be purchased and sold anytime. Closed-ended funds can be purchased from the fund house only at the time of the new fund offering (NFO) and can be sold only once the period of the closed-ended fund has ended. Please note that even though the fund may be an open-ended fund the exit loads, if any, would be applicable.

Are returns guaranteed on Mutual Funds?

NO. Mutual funds are market linked instruments. They invest in stocks, fixed income securities which are linked to market and hence the return could be positive or negative depending on the market situation. So there is no guarantee of return on Mutual funds and past trend doesn't indicate the future income expected from any fund scheme.

What are the various types of MF?

Classification of funds by types of underlying investments:

Mutual funds are normally classified by their principal investments, as described in the prospectus and investment objective. The four main categories of funds are (1) Liquid / Money market funds, (2) Debt or fixed income funds, (3) Equity funds, and (4) Balanced / Hybrid funds. Within these categories, funds may be sub-classified by investment objective, investment approach or specific focus (sector, industry, valuation or capitalization of companies large or mid or small). Debt and Equity MFs may be classified as either index (or passively-managed) funds or actively managed funds.

Who is a Non-Resident Indian (NRI)?

A: Non-Resident Indian (NRI) means a “person resident outside India who is a citizen of India or is a person of Indian origin"[as per FEMA regulations]

Can NRI invest in shares in India through a stock exchange and MF?

A: Yes, NRI can purchase shares or convertible debentures of an Indian Company through stock exchanges, MF ETF and under the portfolio investment scheme on repatriation and /or non repatriation basis.

Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?

A: Yes, NRIs are allowed to Invest in Exchange Traded Funds (ETFs). NRIs can invest in ETFs both on repatriation as well as non repatriation basis.

How can NRIs invest in shares in India?

A: As per Reserve Bank of India (RBI) guidelines, NRIs who wish to invest in shares in India through a stock exchange need to have NRE (Non Resident External) /NRO (Non Resident Ordinary)/ PIS (Portfolio Investment scheme) bank account with the designated branch of any authorized dealer (bank) authorized by Reserve Bank.

What is a designated bank branch?

A: Reserve Bank of India has authorized few branches of each authorized dealer bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. NRI can select only one authorized dealer bank for the purpose of investment under portfolio investment scheme and route the transactions through the branch designated by the authorized dealer bank.

Who is a person of Indian Origin?

A: For the purposes of investments in shares/securities in India, person of Indian origin means a citizen of any country other than Pakistan or Bangladesh, if

  • he at any time, held an Indian passport; or
  • he or either of his parents or any of his grand parents were a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1995); or
  • the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b)

Who is an Overseas Citizen of India (OCI)?

A: Under OCI Scheme operational from 02nd Dec 2005 government of India decided to grant overseas citizenship of India (OCI) commonly known as “dual citizenship”. A foreign national, who was eligible to become a citizen of India on 26.01.1950 or was a citizen of India on or at anytime after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grand children, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws, is eligible for registration as an Overseas Citizen of India (OCI). Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.

Can PIO (Person of Indian Origin) as well as OCI (Overseas Citizen of India) also invest in shares in India?

A: Yes, PIOs and OCIs can invest in shares in India.

Why Should NRIs or Foreign Nationals of Indian Origin Invest In India?

  • India is the fastest growing economy in the world. India is expected to become a USD 5 trillion Dollar economy (third largest economy) by 2025. Invest in the India story to participate the massive growth with socio-economic, political, policy, currency and interest rate stability.
  • Booming Market Capitalization: The market capitalization of stock markets in India is still lower than the size of the economy. Across developed countries like USA, the market capitalization is actually much more than the size of the economy. This is expected to happen in Indian as well in the next few years. Create wealth for yourself by investing in Indian Companies.
  • High Interest Rates: The interest rates in India are comparatively high. Risk averse investors can generate better returns in higher returns yielding Debt funds which are more tax efficient by investing money in Debt funds rather than keeping money in Fixed Deposits in Indian banks.
  • Stable Currency: The Indian rupee has remained stable in the last 5 years and has outperformed several other currencies compared to the US Dollar. Diversify and hedge your currency risks by Investing

Can NRI invest in Indian Stock Market /Mutual Funds?

NRIs or Foreign nationals having a valid Pan Card and holding rupee designated NRE/NRO bank accounts can invest in Indian Stock Market and Mutual Funds.

What is the documentation required to Invest in Indian Stock Market / Mutual Funds for NRI Investors?

The following documents are the major ones required to invest in Mutual Funds in India:

  • Pan Card Copy
  • Passport Copy (Front and Back page) for Indian Passport Holders
  • Passport Copy (Front and Back page) with Indian Visa page and PIO card for Foreign Passport Holders
  • Foreign Address proof/ Indian Address proof (For ex: if passport has foreign address then provide Indian Address proof)
  • Bank Proof (cancelled cheque or latest bank Statement from NRE or NRO Account)
  • Person of Indian origin (PIO) or Overseas Citizen of India (OCI) certificates. This is only required for investors who are not Indian Nationals.
  • Copy of TIN (Tax Identification Number) in investor's tax domicile country

Can USA/Canada NRIs invest in Indian Stock Market and Mutual Funds?

Yes, USA/Canada NRIs can invest in Indian Mutual Funds just like any other NRIs. However, there are some Mutual Funds houses which do not allow online investments for US/CANADA NRIs. According to FATCA, all financial institutions are required to share the details of any financial transaction involving US citizens with the US Government..

Can NRI invest through resident Indian bank account ?

If you are registered as an NRI, you are required to invest only either through NRE or NRO accounts and not resident bank account. NRIs are required to convert their resident indian Accounts to NRO accounts. However, in a scenario a NRI is returning to india shortly and his NRI status is going to change to Resident Indian, you can get in touch with SiRoSa for further details on this to seek assistance.

What is the difference between NRE and NRO account?

NRIs can have a Non Resident External (NRE) and Non Resident Ordinary (NRO) account to manage their incomes earned abroad and in India. Both are rupee designated accounts. NRE accounts for income deemed to have been earned out of India and NRO accounts for income deemed to have been earned from India. Repatriation of money from NRE accounts can be done freely while there are some restrictions on the same from NRO account. Also, NRE accounts are tax exempted while NRO accounts are not. Please contact SiRoSa for specific details in this regard.

What is FATCA and how is applicable to Stock Market and Mutual Funds investments in India?

Foreign Account Tax Compliance Act (FATCA) is a US government tax policy to which India is also a signatory. As per this act, the Indian Financial Institutions like Indian Mutual Funds are required to report investment transactions of US Persons and Entities to the US government. These transaction reporting is used by the US government to determine the tax liability of their persons and entities as per their domestic tax policies and laws. Due to this, all Indian Investors including NRIs are required to declare FATCA details at the time of their investments to the Mutual Fund houses.

Is there a double taxation for NRIs for investing in India?

No, if India has signed the avoidance of Double Taxation Avoidance Agreement treaty (DTAA) with the respective country. India has signed this treaty with the US & Canada, so any tax paid in India can be claimed as relief in the US/Canada tax returns. Please contact SiRoSa for specific details in this regard.