Return to the Domestic Market Accounts (RIA), designed to redirect retail investor funds that had been concentrated in overseas stocks into the domestic stock market, were rolled out across brokerages on Monday. Attention is on whether a full-scale U-turn of funds will gather pace on the back of tax benefits.

The financial investment industry said on Monday that more than 20 securities firms, including Mirae Asset Securities, Korea Investment & Securities, Samsung Securities and KB Securities, began offering RIA account opening services from Monday.

RIA is a scheme that grants capital gains tax reductions if investors move overseas stocks they held before Dec. 23 last year into a dedicated account, sell them there, and then invest the proceeds for at least 1 year in domestic stocks or domestic equity funds.

The tax benefits are applied differently depending on when investors return. Investors who sell by May 31 receive a 100 percent capital gains tax deduction. Sales from June 1 to July 31 get 80 percent, and sales from Aug. 1 to Dec. 31 get a 50 percent reduction. The deduction cap is 50 million won, based on the sale amount summed across accounts at all securities firms.

The government initially considered limiting account holdings to 1 account per person, but ultimately decided to allow multiple accounts.

The move reflects the reality that many investors use multiple brokerage accounts. Investors can open an RIA account at each securities firm they use. The tax benefit cap remains 50 million won in total regardless of the number of accounts.

The sign-up process is relatively simple, but the conditions are clear. Investors must create a separate RIA-only account, transfer overseas stocks they already held into that account and sell them directly within it to receive the benefits.

A key requirement is the 1-year holding obligation. Investors must keep the account for at least 1 year from the final sale date, and taxes already reduced can be reclaimed if they sell domestic stocks early or close the account. Profits generated in the course of domestic stock investment that exceed principal can be withdrawn within a certain range.

To prevent short-term, arbitrage-like fund shifts that take the tax benefit and then return to overseas stocks, the government and the industry designed the scheme so that if investors buy overseas stocks or products with a strong overseas investment character in other accounts within this year, the deduction is reduced by that amount. Net purchases of overseas stocks in accounts at other financial institutions outside the RIA account are also subject to deduction.

Two factors underpin the policy: the exchange rate and the stock market. The government aims to draw dollar assets parked in overseas markets back to Korea to ease upward pressure on the won-dollar exchange rate and broaden the demand base for the local stock market.

With the won-dollar exchange rate recently hovering around 1,500 won, expectations have emerged that RIA could boost demand for selling dollars and have a positive impact on foreign exchange supply and demand.

Brokerages view RIA as helping expand liquidity in the domestic stock market in the short term.

Yeom Dong-chan (염동찬), an analyst at Korea Investment & Securities, said Indonesia, which implemented a similar bill in 2016, saw about 12 percent of overseas assets return home. He said the Indonesian rupiah strengthened during the period even amid a longer-term weakening trend.

He added that the policy would support a stronger won.

Some also see it as too early to say RIA will immediately lead to the return of retail investors in overseas stocks. That is because the expansion of overseas investment is not a temporary fad but a structural trend centered on the U.S. artificial intelligence (AI) industry, making it difficult for tax incentives alone to completely change fund flows.

Lee Young-gon (이영곤), head of the research center at Toss Securities, said he agrees with the government's policy stance of encouraging domestic investment, but said direction alone is not enough.

He said investors will return only if they are given experience and trust that they can earn sufficient returns by investing in Korean companies.