Introduction:
Your residency status changes from a Resident to a Non-Resident Indian (NRI) when you move abroad for any reason and spend less than 182 days in India in a given financial year. Since the rules governing the banking and investment accounts of NRIs are different, certain steps must be taken to keep investing in the Indian stock market. Unlike a regular savings account that can be readily converted into a Non-Resident Ordinary (NRO) savings account, converting your demat account is different.
Read on to learn more about the status of your demat account after a change in residency, the types of demat accounts available, and how to do it.
Status of Demat Account After Change in Residency
If you have a Resident demat account, it can be changed to an NRI demat account. These regulations are governed by
Your existing demat account cannot be readily converted to an NRI one, but you can close it and open a new one. Before doing this, don't forget to inform your depository participant or bank about any change in your residency status.
Read More: What is a Demat Account?
NRI Demat Account Types
If you want to hold your portfolio of Indian investments on a repatriable or non-repatriable basis, you will need different demat accounts according to the Portfolio Investment NRI Scheme (PINS). The two types of demat accounts that NRIs can use to invest in India are:
- Non-Resident External (NRE)
- Non-Resident Ordinary (NRO) accounts.
These are the guidelines:
According to PINS, an NRE account is needed to transact in secondary markets.
- A PINS account can be opened with any bank designated by the Reserve Bank of India (RBI) to manage portfolio investment.
- Only a single bank can be authorised by you to invest in India via PINS, and you can open only one PINS account at any time.
- If your NRE account is designated as your PINS account, it cannot be used for other transactional purposes.
SEBI's guidelines require separate NRE and NRO demat accounts to make investments on a repatriable and non-repatriable basis, respectively. Any investment from the NRE demat account is fully repatriable. However, funds up to USD 1 million are repatriable from an NRO account during a given financial year.
How to Do It
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Depending on whether you want an NRO or NRE demat account, the respective application form must be filled out.
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All the shareholders must sign these forms for multiple shareholders.
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You must submit all details of shares purchased from the primary market and the PINS application form.
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Submit the application form, a PINS tariff sheet, and a holding statement to your depository participant or bank.
The securities from your resident demat account will be transferred to the NRO account after the Know Your Customer (KYC) compliance is completed.
Open Demat Account and Start Trading!
Status of Existing Shares in a Resident Demat Account
The existing shares in your resident demat account can be sold or transferred to the NRO or NRE demat account. As mentioned, there are restrictions on the repatriation of funds from the NRO account, while no such restrictions exist on the NRE account.
Conclusion:
Once you fulfill certain conditions, a resident demat account can be converted to an NRI one. Ensure you fulfil the obligations and regulatory guidelines put forth by the PINS, and you can continue investing in India. Work with your chosen depository participant to ensure a smooth and hassle-free transition to effectively manage your investment from abroad. It's recommended to seek professional advice before making any such change because investments are always subject to changes in laws.
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