Interest in directly investing in international stocks is growing in India and to cater to this, new vistas are opening up for Indian retail investors eager to diversify beyond domestic stocks. Special platforms are coming up in Gujarat International Finance Tec-City (GIFT City) to enable the transaction of international securities. Currently, investors can take exposure to US stocks through online platforms, having tie-ups with US brokers. We take a look at the newer ways of going global and how it compares with the current route.

GIFT way

In the GIFT City, NSE International Exchange (NSE IFSC) will permit trading in select US stocks facilitated through the NSE IFSC platform. The offering will be in the form of unsponsored depository receipts. In this route, market makers buy US stocks and issue depositary receipts against shares that lie with custodian bank.

The entire trading, clearing, settlement and holding of US stocks will be under the regulatory structure of IFSC Authority. Indian retail investors will be able to transact on the NSE IFSC platform under the LRS limits prescribed by RBI that permits resident individuals to remit up to USD 2,50,000 (₹1.8 crore at current rates) per financial year. Investors will be able to hold the depository receipts in their own demat accounts opened in GIFT City. This indicates investors would need to open demat accounts with the entities based in GIFT City. Given the high prices of US stocks - for eg. one Amazon.com Inc share costs $3100 (₹2.3 lakh) - investors will be provided with an option to trade in fractional quantity/value. All the trades will also be covered under the investor protection framework at NSE IFSC. To begin with, NSE IFSC is expected to list depositary receipts of 50 US stocks including Google parent Alphabet, Facebook, Amazon, Tesla etc.

India INX, BSE’s international arm, is also adding international stocks to trading, including shares from major US-listed companies via its wholly owned subsidiary - India INX Global Access IFSC. It proposes to offer stocks from the US, Canada, UK, Europe, Australia, and Japan, covering about 80 percent of the investing universe. Resident individuals can use the India INX platform under the LRS route. Eventually, India INX in the first phase is expected to provide access to over 130 exchanges across 31 countries worldwide

How it compares

The GIFT way of investing in global stocks offers distinct advantages over the existing route of direct investing where one opens a US brokerage account through online platforms such as Vested, Globalise, Stockal etc. Investing in global securities in the GIFT exchanges is likely to be more secure as the transactions will be overseen by IFSCA. Additionally, the GIFT way of global investing is likely to make the entire process easier and, importantly, it could be at a lower cost for Indian investors although we await exact pricing details. Right now, online platforms charge base plan opening fee of upto ₹499 per year or ₹399 one-time, while brokerage can be upto $2.99 per trade. Under the paid/premium plans, brokerage fees are virtually free generally, but account charges range from ₹2,500-13,999 a year. There are costs involved in the deposit process to fund US brokerage account, depending on the bank you use. Similarly, during withdrawals, the remitting bank will charge fee for the transfer. However, do remember that one would need to watch out the liquidity/volume aspect and premium/discount on depositary receipts over actual US stocks when trading eventually begins.

Taxation remains a grey area too. On paper, IFSC is a tax-exempt jurisdiction and so taxes such as capital gains tax, STT and stamp duty do not apply. However, domain experts opine that the tax-free status can be enjoyed only if a person or company located in IFSC campus is carrying those trades.

Readymade portfolios

The nearly 50 international mutual funds arguably offer the best way to play international stocks and score over others in many ways. Firstly, these funds are managed by professionals who have done the research and are skilled at portfolio management. Two, most of the international funds are available for Indian investors only after their master fund has developed a track-record. In case of index-based international funds, the indices too have a demonstrable history. Three, MFs compress the costs linked to direct investing in global stocks into one single data point, with total expense ratio (TER) for direct plans ranging from 0.10-2.28 per cent. Four, direct global stock investing also brings along with it the hassles related to capital gain tax, withholding tax on dividend from foreign securities etc.

Beyond the international MF route, curated portfolios from ICICI Securities (I-Sec), which operates ICICIdirect, by virtue of a tie-up with US investor advisor, Interactive Advisors, has been introduced. These portfolios of international stocks are built on models constructed by global fund managers such as Global X- by Mirae Asset, State Street Global Advisors, Legg Mason, Wisdom Tree. There won’t be any brokerage on such transactions, but there is an asset management fee linked to the portfolio and investment strategy. There is also a minimum investment amount of $100. Some of the online platforms such as Vested, Stockal and Globalise also offer pre-built stock portfolios based on different strategies and themes. There may be an access fee depending on plans.

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