Yes, an NRI can open a demat account; however, rules of FEMA – Foreign Exchange Management Act will be applicable.
As per Reserve Bank of India (RBI), an NRI can only own up to 5 % of the paid – up capital in an Indian registered company. An NRI can invest in IPOs – Initial Public Offers, however, it is based on a repatriable basis using the NRE demat funds through their NRE (Non-Resident External) Rupee bank account. Nevertheless, if the NRI invests on a non-repatriable basis, then their NRO (Non-Resident Ordinary) Rupee account and NRO demat account will be operated.
Through the PINS – Portfolio Investment Scheme an NRI is permitted to transact in shares and mutual funds through their account in India.