Investing in US stocks has always been a dream for Indian investors & National Stock Exchange (NSE), on March 3rd, 2022 NSE finally facilitated this service. The NSE has launched a wholly-owned subsidiary of NSE International Exchange called “NSE International Financial Service Centre” (NSE IFSC). The facility currently allows the Indians to invest in the stocks of 8 companies and has the plan to be expanded to 50 companies later.
FUNCTIONALITY:
The units of the investment on the NSE IFSC are “Depository Receipts” which are unsponsored in nature. Depository Receipts (DRs) are basically a kind of a part of a share & usually 5 to 200 unsponsored DRs adds up-to a share value, depending upon the company.
- Ø Sponsored DRs: When a company directly offers DRs to the investors, they are known as sponsored DRs. The holders of the sponsored DRs are entitled for every corporate benefit like ‘Dividend’, ‘Bonus Shares’ etc.
- Ø Unsponsored DRs: When a company doesn’t directly offers such DRs, they are known as unsponsored DRs. The holders of unsponsored DRs may or may not receive the corporate benefits.
NOTE: The unsponsored DRs traded on the NSE IFSC will be getting every benefit that the respective company will be extending to its shareholder.
Companies available for investment currently:
About NSE IFSC:
On November 29, 2016; the NSE IFSC was incorporated in Gujarat by the Registrar of the companies as a fully owned subsidiary of NSE. The subsidiary received approval from the Securities Exchange Board of India (SEBI) for the establishment of an international exchange in Gujarat International Finance Tech (GIFT) city, Gandhinagar.
The Process:
Ø Open a separate Demat account with a broker licensed with IFSCA. The existing Demat account can’t be used for trading in US stocks.
Ø In the account opening process, complete all the KYC norms & compulsorily submit a declaration in the US W-8 BEN / W-8 BENE form with NSE IFSC. The form is commonly known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding & Reporting”
Ø Ø The currency in which the trading can be done on NSE IFSC is US Dollar. So, the investors are vested essentially with 2 options:
· Either you need to open a Foreign Currency Bank Account (FCA) with a bank that operates in the IFSC region.
· Remit the money to the IFSC based broker {Make sure the bank is an authorised dealer- Category 1 bank & has filled the Liberalized Remittance Scheme (LRS)}.
Trade Timings:
In US (GMT -5), the official trade timing is from 09:30 A.M. to 04:00 P.M. Due to time zone variations all over the world, the trade-in India (GMT +05:30), is conducted over 2 days, starting at 08:00 P.M. & extending till 02:30 P.M. the next day. The trade is conducted on the NSE IFSC.
Customizations in trading for Indians:
Note: Short-Selling is a process of selling the stocks without having them in the demat account & then covering-up the open position when the prices fall, thereby making profits even from falling prices.
Competitors:
Tax Liability:
Short-term capital gains are taxed as per the slab rate while Long-term capital gains will be at 20% with indexation. The DRs will be considered as foreign assets for the purpose of income tax returns filing.
RBI’s view on the facility:
As per an RBI circular dated February 16, 2021, Indian residents can remit money for investments under LRS to IFSC in India through Authorised Dealer- Category 1 banks, limited by certain conditions.
Under Section 5 of the Foreign Exchange & Management Act (FEMA), 1999, any person resident in India is free to transact foreign exchange for any current account transactions with exceptions to some strictly prohibited transactions.
Currently, the LRS framework of RBI permits the remittance of up to $2,50,000 per financial year for every resident individual.
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