PIS Vs Mutual Funds: Which Is the Right Choice for NRIs?
The Portfolio Investment Scheme (PIS) is a scheme established by the Reserve Bank of India (RBI). It allows non-resident Indians (NRIs) to buy and sell shares and convertible debentures of listed Indian companies.
In contrast, mutual funds (MFs) pool money from many investors. The collected money is used for purchasing equities, bonds, money market instruments, and government securities.
Thus, PIS and mutual funds are two different ways of investing in the Indian stock market. This article highlights the key points of distinction between them.
How Is PIS Different From Mutual Funds?
PIS differs from mutual funds in terms of the following:
- Eligibility
PIS is specially designed for NRIs, persons of Indian origin, and overseas Indian citizens. Mutual funds are open to resident Indians, domestic institutions, and NRIs.
- Permissions
NRIs require permission from the RBI to start investing in Indian stocks. The RBI has authorised certain banks to issue permissions, one of which is Federal Bank.
For investing in mutual funds, NRIs must comply with the rules of the Foreign Exchange Management Act. Indians living in the US and Canada should meet additional requirements under the Foreign Account Tax Compliance Act.
- Account type
NRIs must open a non-resident external (NRE) PIS account for repatriable investments. An NRE PIS account helps them transfer money from a foreign country to India. It is a like a savings bank (SB) account. It is used for trading in stocks only and chequebooks are not provided.
For non-repatriable investments, NRIs must apply for a non-resident ordinary savings bank account.
NRIs also require a trading and a demat account with the authorised bank/broker for PIS. In contrast, it is not mandatory to open a demat account for mutual funds as these can be directly purchased online on the mutual fund company's website.
- Reporting
PIS account transactions must be reported daily to the RBI. In contrast, as per SEBI regulations, mutual funds must report holdings monthly, half-yearly, and at the time of launch.
- Trade execution
The NRI account holder must permit the broker to buy/sell shares. They must also authorise the bank to make/accept payments for trades executed via the broker.
In mutual funds, the fund manager rebalances the portfolio based on market conditions and fund objectives. Investors can only buy/redeem mutual fund units at will.
- Taxation
NRIs must pay short-term capital gains or long-term capital gains tax on profits gained from PIS. For mutual funds, taxes on capital gains can go up to 30%.
Conclusion
While both mutual funds and PIS allow NRIs to trade in Indian stocks, investing in PIS is more hassle-free. It allows a single NRI to hold up to 5% of the paid-up capital of a company. It also gives investors the freedom to rejig their portfolios themselves.
Federal Bank is one of the best banks to open a PIS account with. It has a dedicated team to solve customer queries and branch offices worldwide. Federal Bank provides daily transaction statements and issues PIS holding statements on customer requests.
Open a PIS account with Federal Bank today and enjoy the benefits of Fednet virtual banking and 24/7 customer support.