The PIS vs non-PIS account debate is a common one for NRIs (non-resident Indians), since they come across both these routes. This is mainly due to repatriation requirements, i.e. PIS links to NRE accounts for sending gains back overseas, while non-PIS links to NRO accounts (the funds remain by default in India). 

The PIS account vs non-PIS question for NRIs is further compounded by the fact that the former is only for secondary-market delivery-based equity, while the latter allows various investments. The RBI and FEMA guidelines also come into play here, where the FEMA system governs foreign exchange, while the RBI tracks aggregate and individual NRI equity ownership limits in listed Indian entities. There is also an increasing shift towards non-PIS models these days, for reasons ranging from a wider variety of investments to more operational ease and lower costs. Let us look at what each account means, their core differences, investment options, benefits, and how they work. 

Key Takeaways

• NRIs can choose PIS or non-PIS accounts, which are different routes for investments. 
• The suitable pathway depends on the regulations applicable, the bank/financial institution, investment offering/product and the brokerage. 
• PIS accounts are mainly linked to specific listed equity investments as per the RBI guidelines, while more investment products are available under the non-PIS route. 
• PIS requires reporting of each secondary-market stock trade with the RBI, while no such direct reporting is necessary for non-PIS accounts. 
• PIS enables full repatriation of funds back overseas (linked to NRE accounts), while non-PIS accounts are usually linked to NRO accounts which have repatriation limits. 
• NRIs can also hold multiple non-PIS channels, although only one designated PIS account may be held at one time. 
• PIS may come with higher banking and other fees, making non-PIS channels comparatively affordable to maintain. 

What is a PIS Account?

A PIS (Portfolio Investment Scheme) is a specialised/designated bank account that is regulated by the Reserve Bank of India (RBI), permitting non-resident Indians (NRIs) to trade in convertible debentures and shares on Indian stock exchanges. It is mandatory for routing delivery-based equity selling and buying in the secondary market. However, it is limited to delivery trades; short-selling and intraday trading are not permitted. 

The framework has been setup under the Foreign Exchange Management Act (FEMA) and NRIs invest under the RBI’s Portfolio Investment Scheme. Individual purchases are limited to 5% of the company’s paid-up equity capital, while the total combined NRI holdings in one company cannot be more than 10%. It may only be increased to 24% through a special shareholder resolution. 

Key Aspects: 

• PIS accounts help streamline and track foreign portfolio investments in the capital markets in India. 
• Sale and purchase settlements are automatically managed via designated banking branches. 
• Aggregate investment thresholds are monitored to abide by statutory limits. 
• NRE PIS accounts are linked to non-resident external (NRE) accounts for investments made on the fully repatriable basis (the gains and principal may be sent back overseas). NRO PIS accounts are possible on a non-repatriable basis (the money stays by default in India). 
• Authorised dealer banks will track and report each transaction to the RBI directly, while monitoring the overall thresholds for individual companies. 

What is a Non-PIS Account?

A non-PIS account helps NRIs invest in eligible securities in the Indian market that do not need any routing through the PIS (portfolio investment scheme), subject to the applicable broker, FEMA, RBI and SEBI guidelines. A regular NRO bank account is used for these investments, without requiring any permission letter from the RBI. It does not involve daily transaction reporting to the RBI as well. 

The funds for investments come from earnings in India, i.e. dividends, rent, pensions, etc. They are deposited in the NRO account and brokers may directly execute buy/sell orders through the mapped account (without requiring clearance checks from designated PIS banking branches). Transactions are locally processed, while the sales proceeds are directly returned to NRO balances on the non-repatriable basis.

Key Aspects: 

• Equity shares can be traded in through the non-repatriation basis (delivery). 
• Investments in government bonds, mutual funds, initial public offerings (IPOs) and corporate debt are permitted. 
• Participation is also allowed in F&O (futures and options), along with equity intraday trading. 
• Most contemporary brokerages prefer the non-PIS system since it does away with sizeable paperwork, administrative load and API integration issues with partner PSI banking institutions. 
• Clients also benefit from lower fees and operational charges, while the trading experience is almost similar to resident Indian trading accounts. 
• The governing framework is the FEMA regulations for domestic and non-repatriable capital.

PIS vs Non-PIS Account

Here’s looking at the difference between PIS and non-PIS accounts: 

Investment Options in PIS vs Non-PIS Accounts

Here is a closer look at the NRI PIS vs non-PIS question in terms of the applicable/eligible investment options. 

*Investment eligibility is subject to the prevailing FEMA, RBI and SEBI regulations, along with the brokerage policies. 

How Do PIS and Non-PIS Accounts Work?

Here is a non-PIS and PIS account comparison based on how these accounts work. 

PIS Route

NRE/NRO Account: Setting up the fund source with permission from the RBI. 

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PIS Reporting: The designated bank will monitor and report each buy or sell transaction to the RBI. 

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Trading Account: The order is placed through the broker after the bank gives its clearance. 

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Demat Account: Upon purchase, the shares are securely credited electronically to the demat account. 

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Investment: Ownership is achieved of delivery-based equity. 

Non-PIS Route

NRE/NRO Account: The standard NRO account is directly used in this case. 

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Trading Account: The fund will be directly utilised from the account for instant trade execution. 

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Demat Account: The securities will be securely stored without any regulatory permissions or hurdles.

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Investment: Wider participation in assets, inclusive of mutual funds, equities (non-repatriable) and derivatives. 

Benefits of a PIS Account

Some of the core benefits of a PIS account include: 

• Regulatory adherence: These accounts automatically abide by all the prevailing Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines for non-resident investors. 
• Automated reporting mechanism: The daily transaction reporting of stock buy and sell orders is handled automatically by the designated bank. It reports the same directly to the Reserve Bank of India (RBI). 
• No repatriation hurdles: Connecting the PIS account to the NRE (non-resident external) account will help NRIs freely move original capital and the gains/profits back to their countries of residence. The money is fully repatriable in this case. 
• Tax management benefits: This mechanism simplifies monitoring for capital gains, while helping manage tax deduction at the source (TDS) more effectively during equity sales. 

Benefits of a Non-PIS Account

Some of the key advantages of a non-PIS account include the following: 

• Cost Benefits: Non-PIS accounts do not have contract note fees charged by banks (charged extra daily for each contract note), while they also have lower annual maintenance charges than PIS accounts. The brokerage and execution fees are also lower for non-PIS orders. 
• Operational ease: Investors do not require any PIS clearance letter or special approval from the Reserve Bank of India (RBI) for beginning trading or investing with these accounts. It is also possible to link trading accounts to any regular NRO bank accounts instead of only choosing restricted partner banks. 
• Lesser restrictions: Non-PIS accounts permit trading in mutual funds and futures and options (F&O) without any administrative tracking and hassles. 

Is a PIS Account Still Mandatory?

You should understand that the PIS (portfolio investment scheme) account is compulsory only for non-resident Indians (NRIs) who are trading in secondary market equity shares on the repatriable basis through their NRE (non-resident external) accounts. It is, however, not compulsory for non-repatriable and NRO-based trading, derivatives or even mutual funds. Let us look at some key aspects in this regard. 

PIS was set up by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) and the purpose was tracking and limiting foreign portfolio ownership in Indian entities. The individual limits are at 5%, while aggregate limits can go up to 24% in specific scenarios. The framework is tailored to ensure higher tax compliance and capital repatriation monitoring. The PIS framework remains legally necessary for repatriable equity delivery trades as a result. Recent regulatory measures enable better tracking, although the mandate for NRE equity cash-market transactions has not been eliminated. 

Key Aspects: 

• When Mandatory: Secondary market equity delivery trading with repatriable funds (NRE PIS). 
• Not Applicable/Exempted: IPOs (initial public offerings), corporate or sovereign bonds, mutual funds, futures and options (F&O) derivatives trading and non-repatriable cash equity trading via regular NRO accounts (non-PIS pathway). 
• Brokerages often cannot implement repatriable NRE equity trades without any active PSI bank allotment.
• Investors may only have one designated PIS bank branch at a time. 
• Brokers will map the PIS bank certificate to the NRI trading and demat terminal directly for automatically validating the fund settlements. 

Is a PIS Account mandatory for NRIs?

No, a PIS account is not mandatory for NRIs. Every NRI investment does not require this account. It all depends on the brokerage, type of investment, bank and applicable FEMA and RBI guidelines. It is only mandatory for NRIs who want to trade in equity shares on a secondary market exchange in the Indian market. However, it is not compulsory for IPOs, mutual funds and trading in F&O segments via NRO non-PIS accounts. 

Which Account Should You Choose?

This brings you to a core PIS vs non-PIS account question- which account should you select for your portfolio? Let us look at a decision table closely below: 

You may consider opting for PIS if your main objective is investing your overseas earnings in buying shares in Indian companies and also shifting your principal and gains back to your overseas bank account. Non-PIS could be a better choice if you want to invest with your local income earned in India (such as dividends or rent) to trade in derivatives, mutual funds, bonds or even intraday. It may also help if you want to avoid complicated and additional paperwork, along with costlier banking charges. 

Common Mistakes to Avoid

Here are a few common mistakes that you should avoid while investing with these accounts. 

• Assuming every investment requires PIS: You should not assume that a PIS account is the primary option for investing in IPOs (initial public offerings), mutual funds or trade derivatives (futures and options). Remember that it is only compulsory for delivery-based and secondary market equity trading with an NRE/NRO repatriable procedure. F&O and mutual funds can be invested in via regular non-PIS NRO models. 
• Opening the wrong bank account mapping: One common mistake that many investors make is linking their PIS mandate to a wrong or multi-bank setup. Remember that the Reserve Bank of India (RBI) allows only a single designated PIS bank account at one time. You should ensure that your brokerage maps accurately to your designated NRE or NRO PIS banking branch. 
• Neglecting the FEMA limits and compliance regulations: The biggest mistake you can make is surpassing the US$1 million annual repatriation limit from NRO accounts. Another mistake is participating in short-selling or intraday on PIS which is banned. You should always cleanly monitor your capital flows. Remember that non-PIS accounts will support allowed F&O and equity intraday trades based on the current prevailing guidelines. On the other hand, PIS is solely delivery-only. 
• Confusing the PIS and Demat accounts: NRIs often end up confusing their demat and PIS accounts. Do not treat your demat/trading account as the main entity for reporting. Note that the demat account is where your shares are held. On the other hand, PIS is the bank-level reporting mechanism to the RBI. Non-PIS, on the other hand, helps you avoid daily trade reporting to the RBI, thereby eliminating hefty contract note charges. 
• Selecting the account without understanding the eligibility guidelines: Another error is not accounting for higher bank compliance charges and limitations on foreign ownership caps. You should remember that opting for non-PIS is more viable in case you invest through NRO funds (income earned in India) without any instant repatriation requirements. This will help you save money on expensive bank contract note charges.