NSE IFSC (NSE International Exchange) has made the investing route to US stocks easier for Indians with its trading services. In March 2022, the SEBI allowed NSE International Financial Services Centre (NSE IFSC) to facilitate Indian investors in trading US stocks. It is a subsidiary of the NSE (National Stock Exchange) and the trading currency on it is the American Dollar.
This NSE subsidiary allows intraday trading in the US market from India. It offers you to trade many US stocks on its trading platform, including Amazon, Alphabet Inc (GOOGLE), Tesla, Microsoft, Netflix, Apple, Facebook, and Walmart. It is located in Gujarat International Finance Tec (GIFT) City, where exchanges, banks, and financial services firms operate and serve investors with their worldwide trading operations.
The RBI’s LRS (Liberalised Remittance Scheme) allows Resident Indians to invest $250,000 (Rs.1.9 crores) in a financial year. The minimum investment size is as low as $0.01.
The Way to Trade the US Stocks on the Exchange
Before IFSC trading services, Resident Indians needed to approach brokers with trading permission from the US and Indian capital market authorities to trade US stocks from India.
Indian investors need to create a demat account with any of the registered trading members with IFSC. You need to complete KYC formalities to register with these IFSC Authorities. There are a total of 15 banks that have set up IFSC Banking Units (IBUs) in Gift City. These are the top stock brokers that have started subsidiaries as members of NSE IFSC. These brokers can help Indian investors to trade US stocks from India.
Unsponsored Receipts – Understand the Investment Unit on IFSC
Investors can hold US shares as IFSC depository receipts (IFSC DRs) because the exchange allows fractional share trading. If companies do not issue DRs directly, they are known as unsponsore DRs. DRs will be kept electronically in the IFSC depository and accessed through the brokers with whom the client opened a demat account.
Unsponsored Receipt Creation
DRs are created by the exchange-appointed custodian bank. The international market maker will credit the shares with the custodian bank’s overseas unit, and the bank will issue the unsponsore DRs against the shares credite. Your broker buys and sells the DRs on your behalf.
Fractional Shares
Suppose an investor owns one receipt. It does not make you the owner of the whole share of that company. As per the company policy, the investor may need 5 to 200 DRs to be the owner of one stock in the company. For instance, a share of Microsoft may be equivalent to 20 NSE IFSC DRs.
The receipt holder benefits proportionally from the underlying stock with adequate DRs. The corporate benefits will be receive in the investor’s demat accounts.
Brokerage and Taxes
The brokerage on the exchange services is competitive without stamp duty or securities transaction tax (STT). There will be custody charges.
The profits on investments will be taxe as per the holding period.
- If the holding period of shares is less than two years, investors need to pay taxes on short-term capital gain as per the income tax slab they fall in.
- If the holding period is more than two years, you need to pay taxes on your long-term capital gain of @20%.
This way, the route to the US share investing is simpler now on the NSE IFSC exchange.
Investors should consider the risks involve in the US share trading. There is bid-ask spread risk. If the number of trading participants is low, the bid-ask spread may not be attractive. Ultimately, it will increase the transaction cost. Thus, access your demat account with NSE IFSC-authorise brokers and benefit from the US market with prudent investing decisions.
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