InvestorQ : Hi, I am an NRI; can I also participate in the currency derivatives market to hedge my risk? How NRIs can hedge their currency risk through ETDs
Arti Chavan made post

Hi, I am an NRI; can I also participate in the currency derivatives market to hedge my risk? How NRIs can hedge their currency risk through ETDs

Answer
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11 months ago


In fact, NRIs were permitted into the exchange traded derivatives (ETD) only in mid-2016. Here are a few basic things you must know.

· As an NRI, all your dealings in the currency derivatives segment of the stock exchange will continue to be governed by the Foreign Exchange Management Act (FEMA) and will have to be routed through an Authorized Dealer only. That will not change.

· NRIs cannot take speculative positions in ETD as it will invite penal provisions under the FEMA. NRIs can only use the ETD segment to hedge their underlying currency risk on rupee receivables in India.

· NRIs can hedge the currency risk arising out of their rupee investments in debt and equity instruments in India. Additionally, NRIs can also hedge their exposure due to dividends due from their holdings, interest receivable on bonds and the balances of their NRE accounts with authorized Indian banks.

· For the purpose of limits as specified by FEMA from time to time, the overall exposure under the ETD segment and the OTC segment will be considered. NRIs will have to designate an authorized bank to monitor the combined positions. Onus of monitoring will still rest with the NRI.