All You Need To Know About Buying US Stocks On The NSE IFSC Exchange
For Indian investors, investing in international companies has become a popular strategy to diversify their portfolios. Investing in US equities used to be limited to two options: using a US-registered broker or using International Mutual Funds that invest in overseas companies. You can now invest in major US companies on the NSE IFSC (International Financial Service Centre) Exchange, which is the third choice. The NSE IFSC market is based in Gandhinagar’s GIFT City (Gujarat International Finance Tech City), and Indian retail investors will be able to trade in US stocks on the exchange starting March 3, 2022.
In this article, we’ll go over what the NSE IFSC exchange is, how to buy and sell US equities on it, and some important things to remember before you start trading.
What is the NSE IFSC Exchange?
The NSE IFSC (International Financial Service Centre) is the National Stock Exchange’s wholly-owned subsidiary (NSE). This NSE subsidiary runs an international stock exchange in Gandhinagar’s GIFT City, which was created to make trading in Indian equities easier for NRIs and overseas investors. On the NSE IFSC exchange, Indian ordinary investors can now purchase equities listed in the United States.
The GIFT City NSE IFSC exchange is an international exchange where all deals are made in a foreign currency, namely US dollars. Because foreign exchange investments outside of India are made through the LRS (Liberalized Remittance Scheme), your investments in NSE IFSC US stocks will also be made through this scheme. You are only authorised to invest a maximum of US$ 2.5 lakh each financial year under LRS guidelines. As a result, when it comes to investing in US stocks listed on the NSE IFSC, this will be the top limit.
How To Buy US Stocks on the NSE IFSC Exchange
On the NSE IFSC Exchange, you can currently buy 8 US stocks. Alphabet (Google), Amazon, Facebook’s Meta Platforms, Netflix, Apple, Walmart, Tesla, and Microsoft are among them. This number will be expanded to 50 US equities, which will be put gradually on the market. The exchange’s trading hours will be the same as the NYSE’s (New York Stock Exchange). As a result, NSE IFSC trading hours will be from 8 p.m. to 2:30 p.m. IST.
You’ll need a fresh Demat account to trade or acquire these stocks. You will need to open a separate Demat account to trade domestic shares if your present Demat account is insufficient. As a result, you must take the following steps:
Open a trading and Demat account with a broker that is IFSC-registered. If your current broker is already registered with the NSE IFSC, ask them about any requirements you need to complete before trading in US equities on the international exchange. You can find an up-to-date list of IFSC-registered brokers, as well as their contact information, here.
Transfer money from your Indian bank account to the IFSC-registered broker’s account. Because NSE IFSC trades in US dollars rather than Indian rupees, currency conversion is required before investing in NSE IFSC US stocks. Once your money has been sent to the IFSC-registered broker’s account, you can begin trading in US equities listed on the market.
Things You Should Know Before Trading On NSE IFSC
1. You Get Depository Receipts Not Shares
The NSE IFSC exchange does not let investors purchase the company’s actual US stocks. Depository receipts will be issued instead. Depository receipts (DR) are financial instruments that represent a foreign exchange-listed equity stock. DRS let investors own equity shares in overseas companies without having to trade them on a foreign stock exchange directly.
The GIFT City-based HDFC Bank IFSC Banking Unit (HDFC IBU), which buys and holds actual US stocks on behalf of NSE IFSC investors, issues NSE IFSC depository receipts. The underlying stock of the US company will be purchased from an international market such as NASDAQ or NYSE and held on behalf of investors by HDFC IBU.
2. You Can Buy US Stocks In Fractions
DRS allow you to buy US equities in fractions, unlike direct equity transactions on an international stock exchange. Because the cost of actual US equities is in the hundreds of thousands of dollars, this makes them more affordable.
The price of each NSE IFSC depository receipt will fluctuate in real-time depending on the foreign currency value of the equities stock it represents.
The key advantage of this approach is that there is no broker risk because the underlying US equity shares are owned by HDFC IBU on behalf of the clients. If you invest directly in US equities through a US-registered broker, this is not the situation. In the latter situation, the shares are held on your behalf by the broker, putting your money at risk.
Costs To Consider When Buying US Stocks On NSE IFSC
There are a few points to bear in mind before you start trading US equities on this foreign exchange:
NSE IFSC Transaction Fees: The NSE IFSC exchange now charges 12 cents for each $100 of equities exchanged. As a result, the exchange charges 0.12 per cent of the transaction value as transaction costs. For these transactions, however, there is no additional Securities Transaction Tax (STT) or stamp tax.
Brokerage and Demat Account Fees: When buying or selling US stocks on the NSE IFSC exchange, brokerage and Demat account fees apply, which vary by broker.
Currency Conversion Fees: Because you must complete your transactions in US dollars, the bank will charge you a currency conversion fee. This cost may differ from one bank to the next.
Profits Taxation: There is currently some uncertainty as to whether DR of US stocks will be taxed similarly to gains from direct international equity investments. If the criteria are the same, you must stay invested for at least two years before redeeming to be eligible for long-term capital gains (LTCG). Short-term capital gains (STCG) on US stocks held for less than two years before redemption are now taxed at the investor’s slab rate. With indexation, the LTCG rate for these US companies is 20%.
The establishment of the NSE IFSC exchange will make it substantially easier for Indian retail investors to buy top US stocks and diversify their investment portfolio geographically. While the current list of equities accessible for trading on the new exchange is limited, the planned addition of more US stocks would undoubtedly enable a wider number of Indian investors to benefit from investments in top US corporations.
However, investing in individual US equities has its own set of hazards, and you should thoroughly examine each stock before making a decision. If an investor does not have the time or knowledge to research each investment individually, it is preferable to invest in Mutual Funds that invest in international shares to diversify their portfolio. Currently, a number of international funds in India allow investors to acquire exposure to stocks from a variety of developed and developing countries/regions, including Japan, China, the European Union, and others.