Investing in US stock in India by Indian Investors

by S. Prabhakar

                                                                                                                 
         National Stock Exchange's (NSE) International Financial Services Centre (IFSC) platform in Gujarat's Gujarat International Finance Tec-City (GIFT City) has started trading in eight US stocks from  3rd March, 2022.

 

Investing in foreign stocks helps investors to diversify their portfolios and increase their investment horizon and overcome the limitation of being bogged down by the Indian stock markets falling for long time at any point of time.    Historically the foreign stocks are less volatile and also give higher returns compared to Indian markets. 

 

Hitherto to invest in US stocks Investors have to undergo very cumbersome and costly process.    One need to open an International trading account, have a US bank account.   Get Indian rupees converted into US Dollars by complying with RBI guidelines before buying US stocks. 

 

NSE International Exchange

 

NSE IFSC Limited (NSE International Exchange) is a fully owned subsidiary company of National Stock Exchange of India Limited (NSE) which has established an international Exchange in Gujarat International Finance Tech City (GIFT) - International Financial Service Centre (IFSC) Gandhinagar to grow the financial market.

 

Stock exchanges operating in the GIFT IFSC are permitted to offer trading in securities in any currency other than the Indian rupee.

Trading is permitted inter-alia in equity shares of companies incorporated outside of India by Indian Investors.

 

NSE IFSC Receipt

Trading in the stocks will be in the form of Unsponsored Depository Receipts.

The receipts are like depository receipts and with the help of these receipts the investor can invest in fractional quantity of the underlying shares and these Receipts can be held in their GIFT city demat accounts.   The fraction receipts are issued as a ratio of the underlying shares.    For example, one share of Apple will be equivalent to 100 NSE IFSC receipts and one share of Amazon will be equivalent to 200 NSE IFSC receipts each.  The rights of holders of these receipts are at par with the holders of the shares in respect of their right to dividend and other corporate actions.   This is a huge advantage to average Indian investors as they will be able to invest in the shares of blue chip US stocks with small amount of capital.   Investor can get started by investing as little as $0.01 but every share will have its own limit.   In Indian markets an investor has to invest in minimum 1 share and multiples thereof but no fractions are allowed.   This route makes the entire process of international investment easy and at a low cost for Indian retail investors

Trading, clearing, settlement and holding of US stocks will be under the regulatory structure of IFSC Authority.

Will the investor become a Member of the company?

The investor holds receipts and hence will not become member / an equity owner of these US companies, but the investor will be entitled to corporate action benefits, like dividends etc.

How many shares are permitted to be traded?

NSE IFSC has got approval to trade in 50 US shares but on 3nd March, 2022 only eight shares out of this 50 will be made available for trading which will gradually increased to 50.   The much sought after Miscrosoft, Nexflex, Apple, Walmart, Telsa, Amazon, Alphabet and Metaplatforms can be traded.   

Opening Account with IFSCA Trading Members

An investor who wants in invest in US shares, need to open a Trading and  demat account with IFSC Registered trading members after completing all KYC requirements and Liberalised Remittance Scheme with the bank where investor has account.    There are 36 such brokers now, and include most of the large broking houses in India.  Before trading an Investor need to transfer the required amount from his bank account to trading member’s bank account.   Though the trading currency will be US dollars, it is optional for the Investor either to have a US dollar account with a bank in IFSC area or can remit and receive the amount from their domestic INR account.

As per RBI guidelines the maximum limit under Liberalised Remittance Scheme is US $ 2,50,000 per person per financial year upto which an investor can invest

Taxing of gains

Capital gains made on sale of receipts held for less than two years will be considered as short-term capital gains and be taxed according to the tax slabs applicable to the individual.

For holdings of more than two years, provisions of long-term capital gains will be applicable and the tax rate will be 20%, with the benefit of indexation.

Trading days and hours

The holidays will be as per the US trading holiday and in addition few Indian holidays are also observed as trading holidays.     The trading hours will be from 8:30 pm to 2:30 am next day and this duration falling on two days as per IST will be treated as a single business day.

S. Prabhakar

4.3.2022