The National Stock Exchange's subsidiary NSE IFSC (NSE International Exchange) has permitted retail participation in the trading of shares of companies listed in the United States through instruments called 'NSE IFSC Receipts'.
These receipts are issued vis-à-vis one underlying share of the underlying US company. Holding a certain number of these receipts would be equal to holding one share of the relevant US company. This ratio (the number of receipts to one share) differs from company to company.
The underlying shares would be held by Deutsche Bank in the US for this purpose, against which these receipts will be issued, which will be traded in India.
Currently, investors can participate in trading in eight US companies, but this list will be expanded to 50.
The NSE IFSC is offering these services through the International Finances Services Centre (IFSC), the first of which is based in GIFT City, Gandhinagar, which is currently India's only international financial centre. It aims to be at par or even above other international business districts globally.
Here are seven things you need to know about these receipts and how you can go about the process.
1. What is an NSE IFSC Receipts?
These receipts are negotiable financial instruments and can be traded on the NSE IFSC like ordinary shares issued by HDFC Bank's IFSC banking unit (who is NSE IFSC Receipts 'custodian')
The receipts represent a certain underlying US stock, and holding certain number of receipts would be like holding one share of that stock. These ratios vary across companies.
For example, holding 50 NSE IFSC receipts with underlying shares of Microsoft Corporation would be like holding one share of the company. However, this does not mean that the investor holds one share of the company. But an investor may request for the cancellation of NSE IFSC Receipts into the underlying Share, if the NSE IFSC receipts held by that investor is a whole number (1,2,3...) of underlying shares.
This also means that this process enables trading in fraction of these share (like 25 receipts for Microsoft would be half a share when the proportion to one share is 50 receipts). This ratio for all companies is subject to revision and adjustment.
Holders of these receipts would also be eligible for corporate action by the company whose shares back the receipts.
2. How can I buy these receipts?
You would need to have a trading account with an NSE IFSC broker.
There are currently 34 of them, with addresses in GIFT City.
The process is like trading in shares locally - open an account with a broker, transfer funds from a local bank account to a trading account with the broker, which would permit trading in these receipts.
The list of brokers can be found here.
3. Who will hold these receipts for me?
Trading of the receipts will be on NSE IFSC's platform.
The registrar of these receipts will be the Central Depostory Services Limited IFSC, who will provide all services regarding these receipts.
In the US, the shares will be held by Deutsche Bank at the instruction of the custodian. The NSE IFSC receipts will be issued against these shares, which will be traded.
All purchased receipts would appear in the demat account of the investor.
4. Which US companies are available for trade?
Currently, you may trade in eight companies. The companies, along with the receipts to underlying (one) share ratios, are:
- Alphabet (Google): 200
- Amazon: 200
- Meta Platforms (Facebook): 50
- Netflix: 50
- Apple: 25
- Walmart: 25
- Tesla: 100
- Microsoft: 25
Soon, more companies like PayPal, Visa, Berkshire Hathaway, McDonald's and banks like JP Morgan, Wells Fargo and Morgan Stanley will be available.
This list and their ratios can be seen here.
5. Currency of trade and trade timings
Trading will take place in US dollars.
Investors can either open a dollar account with banks operating in the IFSC region or remit and obtain rupees through a local bank in Indian rupees.
Further, trading will take place according to US timings: 9:30 am to 4 pm Eastern Time or 7pm to 1:30 am Indian Standard Time.
Trading will not take place on some US holidays such as Memorial Day (May 30), US Independence Day (July 4), Good Friday (April 15) and some Indian holidays like Independence Day (August 15) and Diwali (October 24).
6. LRS limitations
Trading in US securities through this facility would be subject to the Reserve Bank of India's Liberalised Remittance Scheme.
This scheme lets individuals freely remit up to $250,000 per financial year (April to March) outside India for any purpose.
Therefore, while there are no limitation on the number of trades that can take place, the value of the trades cannot exceed the LRS. LRS is not available to corporations, partnership firms, HUFs and trusts.
7. Tax implications
Any dividend income received from abroad is taxable in India as per the income tax or corporate tax rates.
The sale of the underlying shares is not taxable in India.
Short and long term capital gains is based on the period of holding these receipts.
Some benefits may also be extended by lieu of being in an IFSC.
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