1. What is Portfolio Management ?
The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management.
Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame.
Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers.
2. Need for Portfolio Management
Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks.
Portfolio management minimizes the risks involved in investing and also increases the chance of making profits.
Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved.
Portfolio management enables the portfolio managers to provide customized investment solutions to clients as per their needs and requirements.
3. Types of Portfolio Management
- Active Portfolio Management : As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals.
- Passive Portfolio Management : In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.
- Discretionary Portfolio management services : In Discretionary portfolio management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager who in turn takes care of all his investment needs, paper work, documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full rights to take decisions on his client’s behalf.
- Non-Discretionary Portfolio management services : In non discretionary portfolio management services, the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions.
Investment in secondary market Equity by NRI/PIO are monitored under Portfolio Investment Scheme (PIS) by Reserve Bank of India (RBI) through its Authorized Dealer (Banks).
An NRI can approach an authorized dealer bank (Such as HDFC Bank Ltd) for opening Savings and PIS account if wants to start investments on Repatriable basis (NRE). The maximum amount will be defined by RBI from time to time.
In case if he/she wants to invest funds on Non-repatriable (NRO) basis, he can approach Authorized Dealer Bank (Such as HDFC Bank Ltd) and can open Bank accounts. There will be no upper limits applicable on these investments.
No. There can be only one PIS account for Repatriable Funds. However, an extension account can be opened by HDFC Bank Ltd, whereby primary PIS account can be used for Own trading and the secondary PIS account can be linked to Portfolio managed by KSEMA.
If the investments are made through the Non-Resident External (NRE) Rupee Account, then such investments and the proceeds would be considered as on repatriation basis and can be freely repatriable.
If the investments are made through the Non-Resident Ordinary (NRO) Rupee Account, then such investments and the proceeds would be considered as on non-repatriation basis.
The funds from NRO account can be repatriated freely if the amount does not exceed 1M USD per financial year. The remitter must submit an undertaking and a certificate by a Chartered Accountant in prescribed form.
Apart from repatriation conditions as discussed in the above question, practically there is no difference as far as investments are concerned. However, the interest income earned on NRO attracts income tax deduction at source.
Payment for purchase of shares on repatriation basis must be made by way of inward remittance of foreign exchange through normal banking channels or out of funds held in NRE account maintained in India. If the shares are purchased on non-repatriation basis, the NRIs can utilize their funds in NRO account in addition to the above.
The sale proceeds, dividends etc., will be credited (net of taxes) to the NRE account in case the investments were made was on repatriation basis. In case of non-repatriation basis, the proceeds would be credited to NRO account.
For NRE accounts: Transfer of funds from an NRE is freely permitted, subject to payment of taxes, as applicable.
For NRO accounts: Transfer of funds is permitted within the overall ceiling of USD one million or equivalent per financial year (April – March), subject to payment of taxes, as applicable. You need to submit Form 15CA (online application form) and 15CB (Chartered Accountant Application) to your Branch for transferring funds.
Equity shares are treated as short-term capital assets if they have been held for less than 365 days. The shares held for more than 365 days then they qualify as long-term capital assets.
Dividend income received by virtue of holding Indian company shares is not taxable in the hands of the shareholders.
Long Term Capital Gain:
Gains arising from the sale of shares which are held for more than 365 days, would be classified as long-term capital gains and taxed at the rate of 10 % to income-tax.
Short Term Capital Gain:
Gains arising from the sale of shares which are held for less than 365 days, would be classified as long-term capital gains and taxed at the rate of 15 % to income-tax.
- The actual tax liability for the year as against the TDS deducted from income credited to NRI could be lower for different reasons, to name a few:
- Income up to the basic exemption limit, currently Rs. 2,50,000 (for FY 2018-19) (other than capital gains) earned by NRI is not liable to taxation.
- The income earned may not be liable to tax but the Payer in following cases deducts the tax.
- Capital losses can be set off against Capital Gains, but tax is deducted at source from capital gains without setting off the losses.
- Tax chargeable on income as per Double Taxation Avoidance Agreements (DTAA) with the country where NRI resides, may be lower.
- In view of above, NRI should file Return of Income to claim refund of excess tax deducted.
- Sometimes, NRI may incur short-term or long-term capital loss on sale of investments. He can set off such loss against long term capital gain from sale of investments in subsequent year(s) provided he has filed Return of Income within the prescribed time for the year in which he has incurred loss.
Hence the NRI should file the return of Income declaring loss in such situation.
An NRI is required to furnish his return of income if his total taxable income exceeds the maximum amount which is not taxable. As per the income-tax laws, a NRI is not required to furnish return of income, if
- Total income consists only of investment income from foreign exchange assets or long-term capital gains or both.
- Tax has been deducted at source on such income.
Thus, from the above, it can be derived that if NRI has income from Short Term Capital Gains on equity shares, he would be required to file tax returns in India.