For the past two years, few Fintechs in India have been collaborating with US stock brokers to give Indian investors access to 5000+ US stocks and ETFs. Indian investors can invest in whole stocks or even shares of these stocks. Foreign investment is regulated by the Reserve Bank of India under the Liberalized Remittance Scheme (LRS).
Some of the FinTechs, like INDmoney, Groww, etc are solved the same by making it easy and free for users to open accounts with the regulated US brokers and at the same time trade at zero brokerage.
Now, NSE-IFSC will be yet another route for Indian investors to invest in US Stocks. Before we understand how to trade in US stocks, let’s understand the basics.
What is NSE IFSC?
NSE IFSC (International Financial Service Centre) is a wholly-owned subsidiary of the National Stock Exchange (NSE). This platform, NSE IFSC, is established in the GIFT City (Gujarat International Finance Tech City) in Gujarat. It is under construction with an objective to develop a world-class smart city that could one day become an international financial hub.
So, NSE IFSC is essentially an exchange platform for international stocks. This means stock exchanges operating out of GIFT City will be permitted to trade securities in any currencies (other than the Indian rupee). NSE IFSC offers longer trading hours in index derivatives, stock derivatives, currency derivatives, commodity derivatives and debt securities.
According to multiple media reports, the exchange has received approval to trade in 50 US-based stocks, including Apple, Alphabet, Amazon, Tesla, Meta, Morgan Stanley, and Coca-Cola. But only eight of these stocks will be available for trading for investors on March 3, 2022.
Here is what you, as an investor, should know before trading/investing in US stocks via NSE IFSC.
What is Gift City?
GIFT city is regulated by the International Financial Services Centres Authority (IFSCA : A statutory authority established by Government of India ). Gift City jurisdiction is outside India. Setting up an entity in the Gift City is akin to setting up in any foreign land such as Singapore, Dubai, Netherlands etc. This is a very innovative initiative by the Government of India. It has also decided to offer many Tax Benefits (Exemption of stamp duty, GST along with tax incentives for Alternative Investment Funds, and etc .to attract foreign investors and offshore funds to relocate to India.
How to US stocks traded in NSE IFSC?
An investor or trader can buy and sell US-based stocks through NSE IFSC receipts.
To start trading, you need to have a Demat account with any or one of the brokers registered with NSE IFSC. Once that’s completed, you can transfer money into the brokerage account, and you are ready to trade.
Keep in mind that Indian investors will transact on the NSE IFSC platform under the Liberalised Remittance Scheme (LRS). It is a scheme through which resident individuals can remit money (abroad) for any capital or current account transactions up to a specific limit. RBI prescribes the limit from time to time. At present, the LRS limit is $250,000 per financial year. At the current USD-INR rate, it works to around Rs 1.89 crore.
But what are these NSE IFSC receipts?
The exchange will issue these receipts as trading instruments. In other words, you can trade (buy or sell) the US stocks in India through NSE IFSC receipts (unsponsored Depositary Receipts).
How do NSE IFSC receipts work?
Financial institutions authorised by NSE IFSC (and regulators) buy the shares of the foreign companies. In this case, the shares of the US companies. For traders in the Indian market to trade, NSE IFSC receipts are issued against these shares.
NSE IFSC has appointed Deutsche Bank, New York as the custodian with whom the underlying companies’ shares will be deposited. Based on the instructions from NSE IFSC Receipts Custodian.
Points to note
Before one begins trading in the NSE IFSC Receipts, there are a few points to take note of:
- IFSC Receipts don’t represent the shares of US companies. They will be issued in a specific ratio of the underlying shares. Thus, 100 receipts could make one share of, say, Alphabet. Therefore, the value of IFSC Receipt (of Alphabet) could be 1/100th of Alphabet’s share. These receipts will be traded in US dollars.
- The trade timings are slightly different from domestic market hours. The NSEIFSC Receipts will follow the US market timings. It means the market opens at 8 PM and closes at 2:30 AM (the next day). Though the trade occurs in two business cycles, it will be considered one day.
- Similarly, trading holidays for NSEIFSC Receipts on US Stocks too are based on US market holidays. However, certain Indian market holidays are also considered. The exchange will notify the same from time to time.
- The tick size, which is the minimum price movement of a security or a share, in either direction is set as one cent ($0.01). This means the price movement will be $1.23, $1.24, $1.25 or $1.22.
- Keep in mind the charges and taxes. As a trader or an investor, you may be liable to pay transaction costs and other fees. Similarly, if any of the underlying securities declare dividends, it may be subject to US Government taxation and service charges by the Indian banks or brokers.