Introduction – How to Invest in US Stocks from India
While Indian stock markets provide ample of trading opportunities for traders to earn profits and invest for the long term, it still leaves something to be desired. A crash in the markets takes away a huge chunk of investor wealth and leaves people distraught. This could be remedied by diversifying your portfolio to safeguard your money. Many people prefer investing in US stocks for this reason. It also allows you to grab opportunities that are not available in our markets. In order to help you figure out if this is a method suitable for you, we have posted this article on how to invest in US stocks from India.
If you want to trade stocks that have been listed on US Stock Exchanges from India, you can now do it through NSE IFSC.
NSE IFSC is a wholly owned subsidiary of the National Stock Exchange. IFSC stands for International Financial Services Centre. It is regulated by IFSCA, which is the International Financial Services Centre Authority. Before IFSCA was established, IFSC was regulated by domestic financial regulators like the Securities Exchange Board of India (SEBI), Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDAI), and Pension Fund Regulatory and Development Authority (PFRDA). NSE IFSC is headquartered at GIFT City, Gandhinagar, Gujarat.
NSE IFSC Limited offers trading in various products including index derivatives, stock derivatives, currency derivatives, commodity derivatives and debt securities.
HDFC Bank IFSC Banking Unit (IBU) is the NSE IFSC Receipts Custodian that will instruct the US Custodian, Deutsche Bank AG, New York, to hold the underlying shares for which the Unsponsored Depository Receipts (DRs) have been issued for trading on the NSE IFSC. CDSL IFSC Limited has been appointed as the Registrar responsible for maintaining the register/records of holders of each series of Receipts.
NSE IFSC Receipt
An NSE IFSC Receipt is an Unsponsored Depository Receipt. It is a negotiable financial instrument issued by HDFC Bank Limited IBU, which is an IFSCA-recognized custodian for NSE IFSC Receipts.
An NSE IFSC Receipt is created without the involvement or participation of the Underlying Companies. It would give the holder of such receipt a proportionate beneficial interest in the share of the underlying company. The shares will be held by a custodian in USA. The custodian in USA will issue Unsponsored DRs to the NSE IFSC Depository Account and these will then be traded on NSE IFSC.
Trading can only be carried on underlying shares held by the custodian directly. These shares shall not be issued by ETFs or Investment Funds that are registered with the SEC (Securities and Exchange Commission) under the U.S. Investment Company Act as investment companies.
The NSE IFSC Receipts allow fractional investment in the underlying shares. This is done through a pre-defined exchange ratio (which can be different for different stocks) of 1:N where N stands for the number of Receipts. For example, in the case of APPLE shares, the ratio is 25 (1 share of APPLE = 25 NSE IFSC Receipts), i.e. the investor can buy 1/25th of an APPLE share. This makes the Receipt a share derivative product. The beneficial interest will be passed on to the investors in proportion to their holdings of NSE IFSC Receipts of the respective stocks.
Trading on NSE IFSC
A trader or investor can take trades on the NSE IFSC by remitting the amount to their IFSC trading account through the Liberalized Remittance Scheme that has been introduced by the Reserve Bank of India. It is a liberalization measure that facilitates resident Indian individuals to freely remit funds up to USD 2,50,000 outside the country in one financial year (April to March) for any permissible capital account or current account transaction. The only requirement would be that the individual must be a resident Indian as per the FEMA (Foreign Exchange Management Act).
Trading and investing in US stocks through NSE IFSC can be done by opening a Demat and trading account with an IFSCA registered broker. The dematerialized shares will be held with these brokers acting as depository participants.
Intraday Trading is permitted but Leveraged Intraday Trading is not permitted on this exchange. Naked short trades are not permitted either. A trader can only take trades to the extent of funds available or pledged stocks held in their account. The LRS also limits the amount that an individual can use for trading.
NSE IFSC Receipts are issued and traded in U.S. Dollars. Any amount paid to NSE IFSC Receipt Holders, in connection with NSE IFSC Receipts, will be paid in U.S. Dollars.
Trade timings will be 8 PM IST to 2:30 AM IST, to be adjusted for daylight saving time. It follows US Market hours of 9:30 AM to 4 PM EST (Eastern Standard Time). The settlement of funds will happen on T+3 day through NSE IFSC Clearing Corporation Limited (NICCL).
An investor can request for the cancellation of their NSE IFSC Receipts to convert the receipts into the Underlying Share. This is possible if the NSE IFSC Receipts held by the investor represent a whole number of Underlying Shares (receipts held by the investor of that stock should be equal to the exchange ratio of the share). The investor may then submit a Cancellation Request to take delivery of the Underlying Shares in their US brokerage account.
US Stocks available for Trading
Trading in the NSE IFSC Receipts will be based on the Underlying S&P 500 Index and will only be carried out in shares that have been listed on the NYSE (New York Stock Exchange) or NASDAQ for at least the previous 12 months.
Now let us take a look at the US Stocks that can be traded on NSE IFSC.
|Stock Name||Symbol||Exchange Ratio|
|Bank of America||BAC||5|
|Johnson & Johnson||JNJ||25|
|JP Morgan Chase||JPM||25|
|Procter & Gamble||PG||25|
|Thermo Fisher Scientific||TMO||50|
We hope this blog on how to invest in US stocks from India has clarified a few things and helped you understand how to proceed with the same.
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