By Kul Bhushan, June 12, 2008 (IANS)

Non-resident Indians (NRIs) can benefit from the current bear run on the Indian Stock Exchange as the risk-reward ratio is in favour of long-term investors. Despite the prevailing dip, the Indian economy is expected to grow at a healthy pace of over eight percent this year. But before an NRI can invest in Indian stocks or mutual funds, some formalities - these mean lots of paperwork - have to be completed. Kul Bhushan takes you through the process, step by step.

First, obtain a PAN or a Permanent Account Number. This 10-digit number, issued as a laminated card, is essential for all investments whether an NRI pays income tax or not.

For all their financial investments over Rs.50,000 in India, NRIs must have a PAN card. The card is issued by the income tax department and UTI or UTIISL or NSDL (www.incometaxindia.gov.in. www.utiisl.co.in or tin.nsdl.com) which are authorised to process these applications. You can download the application form at these sites.

The simple form asks for your full name, residential and business address, age, nationality and the name and address of your representative in India. The proof of your name and address must be attested by the Indian mission in your country of residence. This means a special trip to the Indian consulate.

Attach two attested photos and send the application to your representative in India for processing at the addresses given on the web. Or it can be sent through your investment broker or advisor.

The fee for processing a PAN application is Rs.717 composed of application fee Rs.67 (Rs.60 + 12.24 per cent service tax) plus overseas dispatch charges of Rs.650. You can pay by demand draft payable at Mumbai.

Normally it is issued within a month and sent abroad to your address. If an application for PAN is submitted through internet and payment made through a credit card, the PAN number is allotted on priority and communicated to you through email.

To invest in direct equities, you need to obtain prior permission from the Reserve Bank of India that your broker will assist you to obtain.

Then you need to open a Demat or 'dematerialised' account for holding and trading in more than 500 shares. This account enables you to buy, sell and transact shares without the endless paperwork and delays. It is also safe, secure and convenient.

While your normal bank account allows you to hold your money safely, a Demat account lets you to hold your shares safely in electronic form. While your bank account allows you to transfer funds between accounts without handling cash, a Demat account allows you to transfer shares between accounts without handling 'physical' shares.

For investors, a Demat account has many benefits like immediate transfer of shares, no stamp duty on such transfers; nor loss, theft, mutilation due to careless handling or forgery; and reduced transaction cost. Bad deliveries of shares due to signature mismatch, postal delays and loss of certificates in transit do not occur.

A Demat account also helps you to avoid stamp duty and filling transfer deeds, and obtaining quick receipt(s) of benefits like stock splits and bonuses.

If you already have a bank account in India, your bank will easily open your Demat account and you have the advantage of transferring your funds from your bank to your Demat account electronically. With your PAN Card, your RBI approval and your Demat account, you can invest in Indian stocks.

To invest in Mutual Funds as an NRI, you need to obtain a PAN Card and complete the KYC or 'Know Your Customer' process introduced from February 2008 to prevent money laundering.

For this process, you need to fill the KYC form at nil fees. In addition to your name, age, nationality, address, occupation and income details, the KYC form has a mandatory requirement for your PAN number and its copy.

Your recent photo and proof of address is required and it must be attested by the Indian consulate or a legal notary public in the country of your residence. The form has detailed notes that you should read carefully before filling it. The KYC approval takes from one to three months.

After your PAN card and KYC, you can send your payment for Mutual Funds with a draft in rupees from your overseas account or a cheque from your NRI account in India.

To sum up, for direct equity investments, the legal requirements are a PAN card, a Reserve Bank of India approval and a Demat account. For investing in Mutual Funds, you must have a PAN card and a KYC certificate.

For completing all these formalities, it takes at least three or more months and a lot of paperwork before you can invest. But it is worth going through the grind just once to invest in one of the most happening markets.