Indian investors will now be able to trade through the International Financial Service Center (IFSC) platform of the National Stock Exchange (NSE) from March 3 till 8 pm and 2.45 am. Initially trading is allowed in the stocks of Amazon, Apple, Alphabet (Google), Tesla, Meta Platforms (Facebook), Microsoft, Netflix and Walmart.
Trading in these shares will give depository receipts to NSE IFSC investors, which will be received in return for trading in the shares of these global companies. Since the foreign investment limit has not been increased yet. In such a situation, most of the international mutual funds have crossed their limit of investing in the global market. Due to which there are very few investment options through mutual funds and ETFs. In this situation NSE IFSC is giving Indian investors another option to invest in US markets.
Let us know whether this facility is suitable for investors and whether this kind of investment should be done.
How to invest in foreign stocks through NSE IFSC
For this, investors will first have to open a demat account with a depository in GIFT City, Gujarat. For this, investors should check whether their broker is a participant in the depository. All the big retail brokerage firms are starting their business from NSE IFSC. Presently there is only one depository in GIFT City in which NSE, BSE, Multi Commodity Exchange of India, National Securities Depository and Central Depository Services (India) are jointly owned.
Apart from this, investors wishing to invest in foreign stocks will also have to open a trading account with the broker member of NSE IFSC. In this type of investment, investors will get their DRs (Depository Receipts) instead of the shares of American companies in return for their investment. Which will be deposited in the demat account of the investor. If any type of corporate action (such as dividend) is declared by the companies, then the same will be credited in the investor’s account in proportion to his DRs holding. However, investors will not have any voting rights on such investments.
How different is this facility of NSE from the facility provided by brokers?
In the foreign equity investment facility offered by a domestic broker, shares are held in the name of the broker with a third party consolidation. These shares are not in the name of the investor. If the broker defaults in any situation, recovery of money becomes difficult. For this, the investor has to apply to the US Securities and Exchange Commission. A domestic broker can take an insurance cover against any risk posed by its broker partners. In such a situation, before availing such facility from any broker, you should check whether he has taken such insurance cover or not.
On the other hand NSE IFSC is a platform regulated by SEBI. In which the depository receipts received on investment are issued in the name of the investor only.
Should you invest through NSE IFSC
Many financial planners say that for investors who are just starting to diversify their portfolios through foreign investments, investing through mutual funds and ETFs is still a better option.
Vishal Dhawan of Plan Ahead Wealth Advisors (Vishal Dhawan) says that not all investors may have such good research ability to know which foreign stocks they should invest in and which should be avoided. As such, index funds and exchange-traded funds (ETFs) may still be a better option for investors looking to diversify their portfolios through overseas stocks.
He further said that many mutual funds have still not met their limits to invest in foreign ETFs and these are open. Vishal Dhawan advises that we can focus on investing in ETFs listed abroad until further clarification on the foreign investment limit for mutual funds. However, such investors who have a good understanding of global companies and global market can adopt the method of investing in US stocks through NSE IFSC.
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