What is the best overseas equity investment route?

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Indians looking to invest directly in foreign stocks have two new avenues in the form of India INX Global Access and NSE IFSC US Stocks. These alternatives are next to how to trade US stocks through online platforms such as Vested Finance, Stockal, IndMoney through their links with US brokers. Here we compare India INX Global Access and NSE IFSC US Stocks on various aspects to understand the pros and cons.

Type of offers

NSE International Exchange (NSE IFSC) facilitates the trading of select US stocks (currently 8 and will be expanded to 50) through the NSE IFSC platform. American NSE IFSC shares are in fact non-sponsored certificates of deposit (DR). With DRs, you no longer need to route your investments through a US-registered broker to buy shares of Tesla or Netflix. Intra-day transactions are allowed in NSE IFSC receipts if certain conditions are met. However, short selling of NSE IFSC proceeds by Indian retail investors is not permitted. NSE IFSC US Stocks was launched on March 3, 2022. Market hours are 6.5 hours per day from 8:00 PM IST. In the NSE IFSC certificate of deposit structure, since the securities are held by the depositary and not by the brokerage firm, there is no brokerage risk.

India INX Global Access IFSC (INX Global Access or INX GA), part of India INX, provides a centralized platform to route orders to multiple international exchanges. It is linked to 135 exchanges worldwide and therefore potentially all global stocks (over 30,000), including 3,000 odd US stocks, are available. Market hours are 24 hours a day. INX GA is fully operational and launched on November 25, 2021. Owning real (fully paid) shares through INX GA means investors can also earn additional income through the stock lending facility.

Both platforms claim to offer split stock investing, but there are differences. US NSE IFSC shares are certificates of deposit (DR) and 5-200 receipts will form one underlying share. For example, 200 receipts will form 1 Amazon action. The extent of a holder’s proportional beneficial interest is a function of the ratio in which the NSE IFSC Receipts are issued to an underlying share of the relevant underlying company. Certain rights of a cardholder may be affected if that cardholder does not hold a sufficient number of NSE IFSC receipts. For example, holders of NSE IFSC receipts will not be able to receive additional underlying shares of the underlying company in the event of voluntary corporate actions, such as a rights issue. INX GA makes it easy to buy real shares and fractional investing would mean you could buy shares in real fractions.

Note that since India INX Global Access is more like an order routing platform, there is an advantage to international exchange liquidity at the source level. The performance of NSE IFSC receipts is dependent on market makers/liquidity providers, which will have implications on the purchase/sale price of the receipts.

Integration, costs

India INX GA offers integration through brokers as well as direct option. For direct digital onboarding, one can email the India INX GA team to proceed with opening the global equity account. The updated list of India INX trading members (brokers) is available at https://www.indiainx.com/markets/DirectoryMembers.aspx

In the case of NSE IFSC US Stocks, they must register with an IFSCA Registered Trading Member and complete the KYC requirements first. The documentation for the Liberalized Remittance System (LRS) with the bank, the transfer of US dollars to obtain the trade balance, etc. is quite similar. The updated list of commercial members is available on the NSE IFSC website at https://www.nseifsc.com/content/usstocks/Member_Directory.pdf. Note that many of the larger brokers are still not present in the case of INX GA and NSE. IFSC platforms. Currently, the NSE IFSC US Stocks product is in the regulatory sandbox (testing phase). Thus, they will only be able to board a fixed number of customers.

From a cost perspective, the India INX GA route is much cheaper. It does not require a demat account, unlike US NSE IFSC stocks. Thus, there are no account opening fees, no minimum balance requirements, no custody fees and no annual fees. The requirement of a local custodian, a global custodian and a demat account in case of NSE IFSC US Stocks increases the costs for the investor. NSE’s IFSC Receipt Custodian is entitled to charge IFSC Receipt Holders 5 cents per IFSC Receipt issuance, 5 cents per IFSC Receipt cancellation and on the distribution of monetary securities transactions such as cash dividends. Brokerage fees are separate. Apart from what the brokerage firm facilitating the transaction on NSE IFSC will charge the client, the exchange itself will take 12 cents for every $100 or 0.12%.

Compare them to existing online platforms that allow US stocks trading. They charge a basic plan initiation fee of up to ₹499 per year or ₹399 one-time while brokerage is up to $2.99 ​​per trade. Under paid/premium plans, brokerage fees are usually virtually free, but account fees range from ₹2,500 to ₹13,999 per year. There are costs involved in the deposit and withdrawal process to fund the US brokerage account, depending on the bank you use.

The cost of transferring funds under the LRS has been the biggest hurdle for Indian residents to invest in global equities. The average fixed fee is around Rs 500 + GST ​​and varies from bank to bank. Online margin rates also differ from bank to bank. Some selective banks offer lower fees of Rs 200 + GST ​​and lower margin rate for Indian INX GA customers.

Published on

March 05, 2022

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