Investing in US stocks through NSE IFSC

March 4, 2022

NSE IFSC recently announced trading in 50 popular US stocks like Apple, Amazon, and Tesla in the form of unsponsored depository receipts for Indian investors. This has created a lot of buzz among investors who’ve been looking for easy ways to get exposure to these stocks. While the stock exchanges in GIFT City were primarily set up for easy access to Indian stocks and derivatives for NRIs and foreigners, this is the first product for onshore Indian  investors. 

Here’s everything you need to know about it.

GIFT City IFSC 

GIFT city is a Special Economic Zone or a financial hub with tax incentives created by the Government of India with a more relaxed regulatory regime to attract foreign capital to India and export financial services. Think of an area like Singapore or Dubai within India. GIFT city International Financial Services Center (IFSC) is located near Ahmedabad in Gujarat. Read more. The regulator for GIFT city is the International Financial Services Centres Authority (IFSCA), read more

NSE IFSC

Subsidiaries of BSE and NSE, India INX and NSE IFSC respectively, were allowed to set up stock exchanges at GIFT City. These exchanges were essentially set up to allow easier access for international investors looking to trade Indian securities. All trading and settlement happens in US Dollars, which helps avoid the impact of currency fluctuations. 

The first products introduced on these exchanges were index and stock derivative contracts. Other than easier onboarding and lesser regulatory requirements for NRIs and foreign nationals compared to trading on onshore Indian exchanges, there are also tax incentives; no income tax on derivative gains, no STT, or Stamp Duty. This is to attract international traders to trade at GIFT over other platforms in Dubai, Singapore, and other countries. While only derivatives trading is allowed today, it is just a matter of time, now that the depositories have also started operations in GIFT, that trading of Indian stocks will also begin. 

Can an Indian individual retail investor trade derivatives in GIFT city? 

No 🙂 GIFT city is meant only for non-resident Indians and foreigners looking for India exposure. When an Indian investor transfers money to GIFT, it is treated as transferring money out of India using LRS (Liberalized Remittance Scheme). So a maximum of $250,000 per year, and more importantly, any money transferred using LRS can’t be used for trading margin’d products or derivatives. Here is the RBI FAQ—check question 2 and point ii. 

While both the exchanges were originally set up for foreigners and NRIs, they also realised that there is an opportunity to build a product for Indian retail investors. 

Launch of NSE IFSC receipts on US stocks

Over the last 4 years, technology stocks in the US have been on a tear. Companies like Amazon, Apple, Facebook, Google, and Netflix have given phenomenal returns. Added to the performance, these are also brands that a lot of Indians use on a daily basis. The interest in owning stocks of these companies under the LRS scheme has only gone up with time. While there have been a bunch of startups in India that have partnered with international brokers to make investing in these US stocks much easier, they haven’t really taken off for the following reasons:  

  • Cost of international remittance: Money has to be transferred to the international broker and this can cost anywhere between Rs 300 to Rs 1000 in terms of fixed cost apart from losing on the currency spread (between 0.5% and 2%). The cost of receiving the money back could be even more! While the cost might not seem much for large investors who can potentially also bargain with the bank on spreads, it is prohibitive for most retail investors wishing to send between say Rs 10,000 to Rs 2 lakh. 
  • Trust: Most of the Indian platforms today partner with US brokerages, and there is a trust deficit because both the platforms and the overseas broker aren’t under the jurisdiction of Indian regulators. If there’s an issue, it can be a challenge dealing with an international regulator.   

Some startups have found ways to remit money at lower costs by partnering with an international bank and maybe even bearing some portion of the remittance cost as cost of acquisition. But this isn’t sustainable and eventually the fixed costs will most likely go up. Also, while the fixed costs are lower, that could potentially be made up by higher currency spreads by the bank.  

NSE IFSC has found a way to address these problems. When transferring money to GIFT, the banks on either end of the remittance are Indian banks. While this is still an international transfer, the cost of remittance can be much lower here if the bank on the other side of the remittance is the same Indian bank. NSE IFSC and the product is regulated by IFSCA, a statutory authority established by the Government of India. 

The announcement from NSE says that they are launching trading in 50 US stocks through unsponsored depository receipts. Currently, this product is in the regulatory sandbox (test), which means that NSE IFSC will only be able to onboard a fixed number of customers. More customers will be allowed only once IFSCA gives the final approval on the product. Trading is open from 8 PM IST until 2.30 AM IST. Since some of these US stocks are valued between hundreds to thousands of dollars per share, trading in fractionals or owning shares of these companies in multiples of $10 to $20 is also allowed. 

What are Unsponsored Depository Receipts?

When a company listed on exchanges in one country wants to attract investors and trading in another country, it is done through  Depository Receipts (DRs). If the company offers the DR, it is called sponsored DR and if the company isn’t involved, it is called unsponsored DR. Indian companies like Infy, ICICI Bank, Wipro, and others trade on US stock exchanges through sponsored DRs. 

The DRs that will trade on NSE IFSC will be unsponsored, which means that this isn’t the companies themselves issuing the depository receipts. NSE IFSC would have partnered with an international custodian who will hold the shares in the US on behalf of NSE IFSC, and the custodian will then issue DRs to the NSE IFSC depository account in India. These DRs will then start trading on NSE IFSC. Since the exchange is new, NSE IFSC has also partnered with large market makers to ensure that they are providing two-way quotes on the exchange for trading with low impact costs. Market makers before being able to provide sell quotes would have to park the shares with the international custodian. 

The above issue also solves for a large risk that comes with Indian startups partnering with International brokerage firms. Almost in all cases, brokers in the US hold client securities in what is called a margin account or in the street name of the broker. So unlike India where stocks once bought get credited to your demat, where there is little to no broker risk, stocks in the margin account do carry a risk in case the broker were to go under. The broker can take down the client securities as well in case of such a scenario. The securities sitting in the US broker margin account also help generate income, which is how most US brokers are now operating at zero brokerage rates. Read this for more on this. In the above depository receipt structure of NSE IFSC, since the securities sit with the custodian and not the brokerage firm, there is no broker risk. 

Costs 

Apart from whatever the brokerage firm facilitating the transaction on NSE IFSC will charge the customer, the exchange itself will charge 12 cents for every $100 or 0.12%. And yes, this is definitely high when you compare this to the 0.00345% charged within India for equity trades. But this structure involves high fixed regulatory costs, especially for filing W8 BEN form or declaring beneficial ownership to tax authorities in the US regularly. Also, since no leveraged trading will be allowed due to the RBI rules around LRS, the trading volumes on the exchange are bound to be much lesser than onshore exchanges, which I guess would also have been a consideration when deciding the transaction charge. I am guessing the transaction charges would go down with an increase in trading volumes. 

Trading and Settlement 

A T+3 day settlement, which means stocks or DRs once bought will get credited after 3 days (it is 2 days in India) to the demat account. Similarly, funds from stocks sold will get credited after 3 days. Unlike in India, no further transactions will be allowed until the settlement. This means, stocks once bought can be sold intraday, but if held overnight can be sold only after 3 days. Funds from stocks sold can be used for new purchases only after 3 days. 

No intraday leveraged trading would be allowed, or trades will be allowed only to the extent of funds or stocks held in the account. No naked short trades will be allowed either. 

While currently there are only 50 stock DRs offered by NSE IFSC, this list is bound to go up to a lot more over time. 

Zerodha and NSE IFSC

We are in the process of getting our membership and hopefully should be live in a few months once we receive the necessary approvals from the Indian exchanges and SEBI. In any case, the regulatory sandbox restrictions apply today in terms of maximum users, and we should hopefully have our platform ready by the time this user restriction is removed from NSE IFSC and the product and process is tested out well. 

Nithin Kamath

CEO @ Zerodha and partnering startups through Rainmatter to help grow and improve the capital market ecosystem in India. Love playing poker, basketball, and guitar. @Nithin0dha on Twitter. | Personal website: https://nithinkamath.me

75 comments

  1. Vishal says:

    Hi,

    Good to know the process has begun to implement US stock trading through NSE IFSC. Hopefully it will be sooner than two months. Its a hassle having different accounts for trading stocks for different instruments/formats. Requesting to push to incorporate this as soon as possible.

    Thanking you in advance

    • Accel says:

      Number 1 broker in India does not get approval of IFSC for US stocks trading interesting rest all chjinnu munnu got already approval

      • Sundar says:

        Number 1 is only in terms of number of clients. Other brokers provide far better service and took the initiative of setting up an office in GIFT City, unlike Zerodha.

  2. Venkat says:

    Thanks for the explanation on NSE IFSC and GIFT. Zerodha as usual tries to explain complex subjects in a simple way.

    Just one question: Is it Depositary Receipt or Depository Receipt?

  3. Shreyas says:

    Thanks Nithin for the write up. Nicely explained.
    Kudos to NSE for taking this initiative, much appreciation! 🙌

  4. Dhanabal says:

    When we may expect this NSE-IFSC buy option in our Zerodha ? How long it will take to implement? Are teams working on it? If yes pls give progress. it’s good to go. thanks!!

    • Shubham says:

      Hey Dhanbal, we are in the process of getting our membership and hopefully should be live in a few months once we receive the necessary approvals from the Indian exchanges and SEBI 🙂

  5. Aashay says:

    Months! Isn’t that a bit too long considering that there are about 40 brokers who are already registered. Why is zerodha getting late to the party?

  6. Haritash Tamvada says:

    Hi Nithin,

    Thanks for the detailed post. Did answer a lot of questions I had in mind. Looking forward to having this feature enabled on Kite as you progress. If you need an early beta user, happy to give it a try 🙂

  7. Skyvaluestocks says:

    Nice explanation and we are really happy to see this in Zerodha❤

  8. Rishav says:

    Many brokers are already providing the facility, expecting the Zerodha to roll out the platform as soon as possible.

  9. Kunal says:

    Thanks for the update. Any idea if inheritance tax (USA) will be applicable in case of death?

  10. HAIMANTI SUTRADHAR says:

    Please inform us when you get membership
    And also
    Give videos on how to invest in
    NSE IFSC

  11. zay says:

    What would be the requirements for existing zerodha customers? Do we need open separate demat account with Zerodha? Do we need open any specific bank accounts or need to enable existing bank account for US dollar transaction?

  12. Kamal Poddar says:

    Thanks for the comprehensive explanation, as always expected form Zerodha.
    I have one question –
    There is a 3 day period before one can transact again in the same stock. How does it compare to option of trading through intermediaries like you, or say, ICICI demat account ?
    I am looking at scenario where a stock price changes hugely ( like META fell -20% last month) and one wants to take immediate sell/buy action.

    Regards

  13. Mukesh says:

    Dear sir, please get regulatory approvals as soon as possible so as not give up early movers advantage. Although zerodha-The Best broker. Thanks

  14. Rameshwar Marotrao Lingase says:

    Dear sir
    Haw to add my kite app

    • Shubham says:

      Hey Rameshwar, we are in the process of getting our membership and hopefully should be live in a few months once we receive the necessary approvals from the Indian exchanges and SEBI. We’ll keep you updated on this.

  15. vig says:

    hi guys , its a good news. but can we integrate via india inx too for US stock buying ?

  16. Gyan Prakash says:

    Will derivative trading be allowed on these stocks ??

    • Shubham says:

      Hey Gyan, No, GIFT city is meant only for non-resident Indians and foreigners looking for India exposure. When an Indian investor transfers money to GIFT city, it is treated as transferring money out of India using LRS (Liberalized Remittance Scheme). Any money transferred using LRS can’t be used for trading margin’d products or derivatives. Here is the RBI FAQ—check question 2 and point ii.

  17. ravi says:

    I hope Zerodha gets the BSE one also IndiaINX. I understand that is cheaper and provides more range of countries and asset types

  18. Mohamed Yasin says:

    Hi,

    As an nri can I trade in US stocks. Please explain the procedure. Currently I do not have zerodha account.

  19. Anant Manekar says:

    A very good step and opportunity to Indian investors. Hope zeroda will get asap.

  20. Sanjay says:

    Why is Zerodha partnering with NSE IFSC when BSE INX is a far better and cheaper way of buying US securities?

  21. Ankush Verma says:

    It is only for NRI and foreigners. We will be unlucky then. It should be open for all indian individuals.

    • Shubham says:

      Hey Ankush, trading in derivatives in GIFT city is only for non-resident Indians and foreigners looking for India exposure. NSE has introduced unsponsored receipts on select US stocks which resident Indians can invest in. We are in the process of getting our membership and hopefully should be live in a few months once we receive the necessary approvals from the Indian exchanges and SEBI.

      • Ankush Verma says:

        By your line
        NSE has introduced unsponsored receipts on select US stocks which resident Indians can invest in

        We Indian individuals can do trading. But earlier you inform different. It is only for NRI and foreigners. I am confusing. What do you mean. Can you please clear.

  22. Devang Joshi says:

    Will there be any minimum amount/quantity requirements to trade/take position?
    Do we have to have foreign exchange clearance form RBI or any other place to invest in IFSC?
    Will there be exchange cost?

  23. Nakul says:

    Hi Nithin,
    Thanks for the detailed explanation.
    One questions on the DRs – Will we be able to pledge these DRs similar to NSE stocks?

  24. Sunil says:

    How can open foreign acct

    • Shubham says:

      Hey Sunil, we are in the process of getting our membership and hopefully should be live in a few months once we receive the necessary approvals from the Indian exchanges and SEBI. We’ll let you know the process once we’re live 🙂

  25. Pradeep says:

    Few is a relative term.
    Is 3 month or 6 months or 12 months?
    Depending upon this, I would like to make a decision.
    Thanks Pradeep

  26. Akash says:

    Pls advice how do we invest in tesla shares in zerodha platform

    • Shubham says:

      Hey Akash, we are in the process of getting our NSE IFSC membership and hopefully should be live in a few months. We’ll notify you once we’re live 🙂

  27. Kumar says:

    Hi,

    Would you pls explain how dividends distribution works in this model? Similarly, would you clarify that people can purchase fractional stocks even through NSE IFSC?

    Thanks
    Kumar

  28. Anshuman Kumar says:

    Any updates on this?

    • Shubham says:

      Hey Anshuman, we are in the process of getting our membership and hopefully should be live in a few months. We’ll keep you posted on it.

      • Anshuman Kumar says:

        Any info on how this will look like? I have an account on Zerodha already for Indian stocks and Mutual Funds. Will this require a separate account to work?

  29. Vishy says:

    I just need to ask one thing, what sort of trading we will be getting from NSE IFSC, on zerodha
    Is day trading in stocks possible(Intraday) without margin, like long and short , or it is just going to be an investing platform for ETFs and mutual funds. Enlighten please. Thankyou.

  30. Ashish says:

    any update?

  31. Anand says:

    Any updates on this? When can we expect the US stocks to be traded via Zerodha.

    • Shubham says:

      Hey Anand, we are in the process of getting our NSE IFSC membership and hopefully should be live in a few months.

  32. parveen says:

    Any update team??

    • Shubham says:

      Hey Praveen, we’re in the process of getting our NSE IFSC membership and hopefully should be live in a few months.

  33. Arun says:

    1. Under NSE IFSC will NRI be able to trade in derivatives?

    2. Is Zerodha now ready with opening account under this process?

    3. Will Intraday be allowed for NRI?

    4. Can you share some details about fee and structure please.

    • Shubham says:

      Hey Arun, we’ll make all the details available closer to the launch. Currently we’re in the process of getting our NSE IFSC membership and hopefully should be live in next few months.

  34. Ananda Shankar Das says:

    Any update when Zerodha will be starting this? Many brokers have already started it

    • Shruthi R says:

      Hey Ananda, we’re in the process of getting our NSE IFSC membership and hopefully should be live in a few months. Will keep you posted.

  35. Anand says:

    Any update on this? Please let us know when can we expect this to be available

  36. Dencil says:

    In the case of US shares holding in NSE IFSC and a US custodian, who the US companies will know the ownership and trasfer the dividends?

  37. Vishal says:

    Hi,

    Its been over two months now. Are you still in the process of getting your membership? Can you give a clearer timeline so we can look for options?

  38. Rohit says:

    When will NSE IFSC be available in Zerodha?

  39. Muthukumar says:

    Waiting for NSE IFSC Launch in Zerodha Since March 2022.

  40. Shah says:

    How much longer do we have to wait for the access ?

  41. NoobInvester says:

    Hi Zerodha,

    It is already a few months. When can we expect the feature enabled in kite. A lot of brokers already got approval. Zerodha being the top broker should have taken the initiative and got the approval by now.

  42. Noufal says:

    Hi,

    Today also I got the “..live in few months..” response on NSE IFSC thru Zerodha. What’s going on?
    Can you guys be specific on when you can get expect this?

    Thanks,

  43. Varun says:

    When will Zerodha launch US stocks through NSE IFSC investment? Since, March 2022, I have been hearing it will be live soon. Can you provide some specific details when will Zerodha launch the service.

    • Shruthi R says:

      Hey Varun, we’re in the process of getting our NSE IFSC membership and hopefully should be live in a few months. Will keep you posted.

      • Shiva says:

        Instead of that reply we will be live in few months. Can’t you guys reply that till what level the process is finished like application side work is completed, testing or approvals are pending these details will give us Hope.

        I want to know how taxes will be imposed on the US stocks trading. Like short term sale 20% from the profit and long term sale depends on the salary slab. These details are missing, Can you guys give clarity on those as well please

        • Shruthi R says:

          Hey Shiva, we’ll make all the details available closer to the launch. Currently, we’re in the process of getting our NSE IFSC membership, and hopefully should be live in the next few months. We’ll keep you posted.

  44. MAGHA RAM KASWAN says:

    How to link my account with us stock purchase

    • Shubham says:

      Hey, we’re working on getting our NSE IFSC membership. We’ll provide more details on the process once we are closer to launch.

  45. Shrenik says:

    Can you please give proper timeline or tentative expected date about when can we buy us stocks. ?

  46. Pankaj Bhandari says:

    NSE IFSC already given membership to around 40 broker. Where is Zerodha? hoping zerodha are putting some efforts on this.

  47. Deep says:

    Eagerly waiting for the same

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