How to Convert a Resident Demat Account to an NRI Demat Account on Groww?

To convert a resident Demat account to an NRI Demat account, the NRI must submit specific documents, such as the account modification form, along with other required documents. However, the conversion should be done swiftly since Indian laws prohibit non-residents from operating regular resident Demat and financial accounts. 

Conversion ensures that your existing mutual funds and shares can move seamlessly into a compliant framework without forced liquidation.

Regulatory compliance is necessary, since continuing to trade/hold securities in resident Demat accounts after becoming an NRI will violate the FEMA (Foreign Exchange Management Act).

The RBI (Reserve Bank of India) and SEBI (Securities and Exchange Board of India) also need to classify local and foreign capital appropriately. Non-compliance may lead to frozen accounts and sizeable financial penalties (up to three times the value of the non-compliant transactions).

Let us look at what the account is, when and why conversion is necessary, the criteria, the conversion process, and other aspects. 

➡️Click Here To Convert Resident Demat Account To NRI Demat Account

Key Takeaways

• NRI Demat account conversion from a resident Demat account to an NRI Demat account is mandatory by law once an individual changes his/her residency status. 
• Existing holdings will remain in the converted Demat account. to the 
• Existing resident Demat accounts may be converted into NRO (non-resident ordinary) Demat accounts (non-Repatriable). 
• You should link an active NRO savings bank account and furnish the corresponding bank proof. 
• During processing and verification, online trading access may be temporarily suspended. 

What is a Resident Demat Account?

A resident Demat account, or standard Demat account, is a secure digital vault for Indian residents to hold financial securities, such as bonds and stocks, electronically. It is directly linked to a local savings bank account and trading account for domestic market transactions. Some of the key aspects include: 

• It eliminates the need for paper share certificates and accompanying risks of theft, loss or damage. 
• It holds all your shares and securities securely on one platform and links to a standard resident savings bank account. 
• It also links to a trading account for buying and selling securities and operates fully in Indian rupees (INR). 
• There is no fixed maximum limit on the total holding value. 
• Resident Indian citizens above 18 may open these accounts, along with minors (run by guardians), HUFs (Hindu Undivided Families), and local trusts, corporate bodies, and societies. 
• Eligible investments include equity shares of listed companies, ETFs (exchange-traded funds), mutual funds, derivatives, Government securities, treasury bills, bonds and non-convertible debentures (NCDs). 

Why Should You Convert Your Resident Demat Account After Becoming an NRI?

Here are some reasons why you should convert your resident to NRI Demat account: 

• Change in residential status: Your legal classification will switch to an NRI from a resident Indian when you stay outside India for more than 182 days in a particular financial year. Resident accounts are only meant for those living in the country. The law requires you to update your broker and depository participant once your residency status changes. 
• FEMA compliance: The Foreign Exchange Management Act (FEMA) prohibits non-residents from running standard resident financial accounts. Keeping the resident Demat account active after shifting abroad will count as a direct legal breach of FEMA guidelines. 
• RBI requirements: The RBI (Reserve Bank of India) mandates that all securities and capital transactions made by NRIs should be routed via designated non-resident channels, i.e. NRE or NRO accounts. 
• Avoiding regulatory issues: Not updating the status may lead to tax complications during filing as your tax status with Income Tax is NRI, but income generated with the broking platform is tagged under residential tax status.
• Continuing investments legally: Converting the account ensures your existing shares, mutual funds, and bonds are carried over securely without being flagged or locked. It enables you to legally buy and sell assets in India through the appropriate non-repatriable NRO route. 

When Should You Convert Your Demat Account?

If you're wondering whether you can keep your resident Demat account after moving abroad, the answer is no. Here are some scenarios where you should swiftly convert your Demat account: 

• After taking up employment abroad: Taking up employment outside India will establish your NRI status for business or work reasons. This will require an immediate update to your financial accounts. 
• Permanent relocation: Permanently moving out of India means you will cease to be a resident taxpayer. Hence, it will render the existing resident Demat system invalid. 
• Long-term stay outside India: Staying abroad for an extended period will change your legal residency status. This will remove your eligibility to operate local resident Demat accounts. 
• Becoming an NRI under FEMA: Meeting the 182-day threshold outside India will legally designate you as an NRI under the prevailing FEMA guidelines. This will trigger a mandatory re-designation of all your assets. 

Brokers may take 7-10 days to process paperwork. Hence, operating/holding stocks in the resident Demat account beyond the official status change carries regulatory risks.

Continued non-compliance may result in penalties of up to three times the transaction value, or daily fines under FEMA rules. 

Steps to Convert a Resident Demat Account to an NRI Demat Account on Groww

Here's how to convert a resident Demat account to an NRI Demat account. 

Step 1: Convert your bank account

First, contact your bank to convert your Resident Savings account into an NRO account, unless you already have one set up.

Step 2: Share your NRI details

Submit your notarised documents via Groww's provided link so the team can validate them. Notarisation is mandatory and can be done online or offline. 

Step 3: Prepare your Groww account

Clear your Groww balance, close all open positions, convert physical mutual funds to Demat, and sell any Sovereign Gold Bonds (NRIs are not allowed to hold SGBs).

Step 4: Courier the form

Once the documents are validated, download, sign, and courier the account opening form to Groww, and email them the tracking ID.

Step 5: Account ready

Your NRI Demat will be converted to an NRI account within 3-5 business days, and you will receive a confirmation email. 

➡️Click Here To Convert Resident Demat Account To NRI Demat Account

Documents Required for Demat Account Conversion

Here are the documents required for resident-to-NRI Demat conversion -

What Happens to Your Existing Shares?

Whenever you convert from a resident Demat account to an NRI Demat account, your current equity holdings/shares do not have to be liquidated.

. Here are some key aspects worth noting in this regard: 

• Holdings: Since the account is being converted and a new Demat is not being created, your holdings will remain in the same Demat. Gains from sale of these holdings will be taxed as per the tax structure under NRI.
• Corporate actions: You will remain fully eligible for all corporate actions, provided your shares are recorded in the Demat account by the designated record date of the company in question.
  Standard structural actions, including mergers and stock splits, will automatically show in your electronic holdings via the depository.
• Dividends: Cash dividends will be directly credited in your designated NRO bank account connected to your folio.
  Companies/registrars will deduct applicable TDS (tax deducted at source) on dividend payouts to NRIs based on the maximum marginal rate or the applicable DTAA (double tax avoidance agreement) prior to credit. 
• Bonus shares: Once a company issues bonus shares and you already hold the primary stock on the record date, the added shares will be credited directly to your NRI Demat account without any additional costs.
  Bonus shares allocated for NRO holdings will arrive in your NRO Demat account to maintain the compliance structure for non-residents. 
• Rights issues: Rights Entitlements (RE) will be credited to your Demat account, enabling you to purchase additional shares at a discounted rate. You may apply for the shares, decline them, or allow them to lapse.
  Remember that RE updates and transactions will require stringent automatic/manual cost-price tracking in your portfolio statement. 
• Pending settlements: Any trades implemented before the residency status change should be fully settled under the standard T+1/2 cycle in the active resident timeframe. You cannot place new intraday or delivery orders in resident trading terminals during the status change process.

What Happens to Your Trading Account?

You will have to convert your resident trading account to an NRI trading account. Here are the key aspects to understand. 

• Trading account conversion: You must formally convert your existing resident trading account. You must clear all open derivative or intraday positions and settle any outstanding debit balances before requesting a conversion. Groww will then convert the account on exchanges, Demat and KYC registration agencies. 
• Bank linkage: You have to replace your regular resident savings bank account with a designated NRO bank account. You must provide proof of the new bank account through a cancelled cheque. 
• Pricing: The brokerage structure will change to the latest pricing structure for NRIs in Groww. To learn more, please visit the pricing page.
• Taxation: All applicable Tax Deducted at Source (TDS) is automatically deducted by Groww as per regulations before the proceeds are returned to your Groww balance. Groww charges a standard 15% surcharge, and TDS reversal is not allowed. However, you can carry forward your trading losses and set them off against future profits within the same financial year. 

Common Mistakes to Avoid

Here are some common errors to avoid when converting a resident Demat account to an NRI Demat account. 

• Delaying notification after becoming an NRI: Don't wait too long to inform Groww and your bank about your residency status change. This can lead to direct violations of FEMA guidelines. 
• Not opening the correct bank account: You will need the right NRO bank account for the conversion. Make sure you do not apply with your old resident savings bank account. 
• Submitting incomplete documents: Do not make the common mistake of submitting incomplete documents, with missing paperwork, notarisation or proof. 
• Not checking pending settlements: Don't close open buy and sell orders before switching. 
• Assuming the Resident Demat Account can continue indefinitely: Do not assume it can continue indefinitely; it will be a legal violation. 

Can You Continue Investing After Conversion?

Operating a resident Demat account after becoming an NRI violates FEMA guidelines. However, timely conversion to an NRI setup lets you continue investing under regulatory guidelines. The eligible investments include: 

Resident Demat Account vs NRI Demat Account

Here is a brief comparison of resident Demat accounts with their NRI Demat counterparts. 

Read this blog to know in detail about the difference between a normal Demat account and an NRI Demat account