Which is the better overseas stock investing route?

Indians looking to directly invest in overseas stocks have two new routes in the form of India INX Global Access and NSE IFSC US Stocks. These alternatives are beside the way of dealing in US stocks through online platforms such as Vested Finance, Stockal, IndMoney courtesy their tie-ups with US brokers. Here we compare India INX Global Access and NSE IFSC US Stocks on various aspects to understand the pros and cons.

Nature of offerings

NSE International Exchange (NSE IFSC) facilitates trading in select US stocks (8 currently and will be expanded to 50) through the NSE IFSC platform. NSE IFSC US Stocks are actually unsponsored depository receipts (DRs). With DRs, now you don’t have to route your investments through a broker registered in the US to buy shares of Tesla or Netflix. Intra-day trading is allowed in NSE IFSC receipts if certain conditions are adhered to. But, short selling of NSE IFSC receipts by the Indian retail investors is not permitted. NSE IFSC US Stocks was launched on March 3, 2022. Market timings are 6.5 hours a day from 8 PM IST. In the depository receipt structure of NSE IFSC, since the securities sit with the custodian and not the brokerage firm, there is no broker risk. 

India INX Global Access IFSC (INX Global Access or INX GA), part of India INX, provides a centralised platform to route orders to multiple international exchanges. It has tied up with 135 exchanges globally and so potentially all global stocks (30,000+) including 3,000 odd US stocks are available. Market timings are 24 hours a day. INX GA is fully operational and launched on November 25, 2021. Owning actual shares (fully-paid) via INX GA means investors can also earn extra income from stock lending facility.

Both the platforms claim to offer fractional share investing but there are differences. NSE IFSC US Stocks are depository receipts (DR) and 5 to 200 receipts will form one underlying share. For instance, 200 receipts will form 1 Amazon share. The extent of a holder’s proportionate beneficial interest is a function of the ratio in which NSE IFSC receipts are issued vis-à-vis one underlying share of the relevant underlying company. Certain rights of a holder may be affected if such holder does not hold adequate number of NSE IFSC receipts. For instance, holders of NSE IFSC receipts are will not be able to receive additional underlying shares from the underlying company in the event of any voluntary corporate actions, such as a rights issue. INX GA facilitates buying actual shares and fractional investing would mean you could buy stocks in actual fractions.

Do note that since India INX Global Access is more like an order routing platform, there is benefit of international exchange liquidity at source level. The performance of NSE IFSC receipts is dependent upon market maker(s)/ liquidity providers, which will have implications for the buying/selling price for receipts.

Onboarding, costs

India INX GA offers onboarding through brokers as well as direct option. For direct digital onboarding, one can send an email to India INX GA team to proceed with global equity account opening. Updated list of India INX trading members (brokers) can be found at https://www.indiainx.com/markets/DirectoryMembers.aspx

In the case of NSE IFSC US Stocks, they have to register with an IFSCA registered trading member and start by completing the KYC requirements. The documentation for Liberalized Remittance Scheme (LRS) with the bank, transfer of US dollars to get trading balance etc. are quite similar. The updated list of Trading Members is available on the NSE IFSC website at https://www.nseifsc.com/content/usstocks/Member_Directory.pdf Do note many of the biggest brokers are still not present in case of both INX GA and NSE IFSC platforms. Currently, NSE IFSC US Stocks product is in the regulatory sandbox (test phase). So, they will only be able to onboard a fixed number of customers.

From a cost point, India INX GA route is much cheaper. It does not require a demat account, unlike NSE IFSC US Stocks. So, there is no account opening charges, no minimum balance requirement, no custody charges and no annual charges. The requirement of local custodian, global custodian, demat account in case of NSE IFSC US Stocks adds to costs for the investor. The NSE IFSC receipts custodian is entitled to charge the IFSC receipts holders feels such as 5 cents per issuance of IFSC receipt, 5 cents per cancellation of IFSC receipt and on distribution of monetary corporate action such as cash dividend. Brokerage charges are separate. Apart from whatever the brokerage firm facilitating the transaction on NSE IFSC will charge the customer, the exchange itself will take 12 cents for every $100 or 0.12 per cent.

Compare these to existing online platforms that allow US stock trading. They charge base plan opening fee of up to ₹499 per year or ₹399 one-time, while brokerage can be up to $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 & withdrawal process to fund US brokerage account, depending on the bank you use.

Cost of transfer of funds under LRS has been the key hurdle for resident Indians to invest in global equities. Average fixed charges are approximately Rs 500 + GST and it differs from bank to bank. Online margin rates also differ from bank to bank. Selective banks offer lower charges of Rs 200 + GST and lower margin rate for India INX GA clients.

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