Investing in global stocks through IFSC: Here's what investors should know

International investing has been gaining prominence in the past two years as investors look to avoid single-country risk. Indian investors now have the option of investing in global stocks through the International Financial Services Centre (IFSC) at the Gujarat International Finance Tec-City, or GIFT City. Here’s what investors should know before they do so:

Which entities are offering these services?

India INX Global Access IFSC (INX GA), a special purpose vehicle set up by BSE's India International Exchange, allows people to invest in more than 30,000 stocks across 33 countries and 135 exchanges in the US, Asia Pacific and Europe. One can also invest in more than 80 global portfolios of renowned international portfolio managers with a minimum of $100. This platform, which was thrown open to investors in November last year, has so far logged 148 trades and has registered 180 users, including NRIs and resident Indians. From March 3, investors in India can also trade in select US stocks through the NSE International Exchange (NSE IFSC), a wholly owned subsidiary of the National Stock Exchange (NSE). The investment is in NSE IFSC receipts on US stocks, which will be in the form of unsponsored depositary receipts (DRs). For a start, stocks of eight US entities such as Alphabet, Amazon, Tesla and Microsoft will be traded on the exchange.

What are the benefits?

Retail investors can transact on the IFSC platforms under the liberalised remittance scheme (LRS) limits prescribed by the Reserve Bank of India (RBI). The limit currently stands at $250,000 for each financial year. Both platforms allow investors to invest in fractional quantities and at a low cost. NSE IFSC investors will have to hold the depository receipts in their own demat account opened in GIFT City. INX GA investors do not need to open a separate demat account and will be able to trade through a single account/login for multiple exchanges.

What are the key differences between the two platforms?

With INX GA, investors can buy actual shares of the companies concerned. A certain number of NSE IFSC depository receipts are required to make up one underlying share. For instance, 200 DRs of Alphabet will represent one share of the underlying company. This could impact certain shareholder rights of the DR holder if an adequate number of DRs are not held.

INX GA provides liquidity at source at the level of the respective global exchanges. The performance of NSE IFSC receipts hinges on market makers who will buy shares in the US and issue receipts against them, which can add to the impact cost. For Indian tax purposes, it is not clear whether DRs can be treated as shares, which could affect taxation of profits made from the sale of DRs. NSE IFSC is currently providing the facility under a regulatory sandbox framework and is likely to onboard a limited number of customers.

What are the costs involved?

Investors who come directly through the INX GA’s website after a digital KYC process do not have to pay account opening, custody and annual charges. Investors can also invest through brokers that INX GA has tied up with, for which they will have to pay transaction charges that may vary from broker to broker. NSE IFSC investors may have to pay demat and custodian charges. In addition, they will have to pay market maker and non-market maker charges ranging from 4 to 12 cents per $100 of transaction.

What are the trading timings?

Trading in US stock receipts on the NSE IFSC will be conducted over two calendar days beginning 8 pm on day one and extending up to 2.30 am the next day. Such a trading cycle will be considered one single business day. INX GA is operational 24 hours a day.

What are the steps to invest?

For NSE IFSC, open a trading and demat account with any of the 36 NSE IFSC registered brokers. Transfer funds from your local account to NSE IFSC’s registered broker’s bank account. Once the fund reflects in your broker’s account, you are ready to trade. For INX GA, register your account and complete KYC. Transfer your funds with any of the banks mentioned on the website. Investors also have the option of going through their brokers.