Investing in international stocks has emerged as a popular way for Indian investors to diversify their investment portfolios. Earlier you only had 2 options to invest in US equities – through a US-registered broker or through International Mutual Funds that invest in foreign companies. Now you have a third option – investing in top US stocks on the NSE IFSC (International Financial Service Centre) Exchange. The NSE IFSC exchange operates out of GIFT City (Gujarat International Finance Tech City), Gandhinagar, and from March 3, 2022, onwards, Indian retail investors can trade in US stocks on the exchange.

In this blog, we will discuss what the NSE IFSC exchange is, how you can buy and sell US stocks on the new exchange, and some key things you must keep in mind before you start trading.

The NSE IFSC (International Financial Service Centre) is a wholly-owned subsidiary of the National Stock Exchange (NSE). This NSE subsidiary operates an international stock exchange in GIFT City, Gandhinagar which was set up to help NRIs and foreign investors easily trade in Indian equitiesPune Investment. Now retail investors in India can also buy US-listed stocks on the NSE IFSC exchange.

The NSE IFSC exchange in GIFT City is an international exchange where all trades are conducted in a foreign currency i.e., US dollarsJinnai Wealth Management. As investments outside India in foreign exchange are done under the LRS (Liberalized Remittance Scheme), your investments in NSE IFSC US stocks will also be done under this scheme. As per LRS rules, you are allowed to invest a maximum of US$ 2.5 lakh during a financial year. So, this will qualify as the upper limit when it comes to investing in US stocks listed on NSE IFSC.

At present you can buy 8 US stocks on the NSE IFSC Exchange. These are Alphabet (Google), Amazon, Meta Platforms (Facebook), Netflix, Apple, Walmart, Tesla, and Microsoft. This number will be increased to 50 US stocks that will be introduced on the exchange in a phased manner. The trading time on the exchange will be as per those of the NYSE (New York Stock Exchange). So NSE IFSC trading hours will 8 pm IST to 2:30 pm IST.

To trade or buy these stocks, you will need a new demat accountLucknow Stock. Your existing demat account for trading domestic shares will not be enough and you will have to open a special demat account. That’s why, you have to do the following:

Investors don’t get to buy actual US stocks of the company through the NSE IFSC exchange. Instead, you will be issued depository receiptsMumbai Stock Exchange. Depository receipts(DR) are financial instruments that represent an equity stock listed on a foreign exchange. DRs allow investors to hold equity shares of foreign companies without the need to trade directly on a foreign stock exchange.

NSE IFSC depository receipts are issued by the GIFT City-based HDFC Bank IFSC Banking Unit (HDFC IBU) which buys and holds the actual US stocks on behalf of the investors of the NSE IFSC exchange. HDFC IBU will purchase the underlying stock of the US company from an international exchange such as NASDAQ or NYSE and hold them on the behalf of investors.

Unlike direct equity transactions on an international stock exchange, you can purchase US stocks in fractions using DRs. This increases affordability as the cost of actual US stocks runs into hundreds and thousands of dollars. Under current guidelines, the following is the number of DRs HDFC IBU will issue for the 8 US stocks currently available on the exchange :

The price of each NSE IFSC depository receipt will change in real-time based on the value of the equity stock it represents on the foreign exchange.

The main benefit of this system is that as the underlying US equity stock is held by HDFC IBU on behalf of the investors, so, there is no broker risk. This is not the case if you are directly investing in US equities through a US-registered brokerKanpur Wealth Management. In the latter case, the shares are held by the broker on your behalf which puts your investment at additional risk.

Before you start trading in US stocks on this international exchange, there are a few things you should keep in mind:

The introduction of the NSE IFSC exchange will make it significantly easier for retail investors in India to invest in top US stocks and introduce geographical diversification in their existing investment portfolio. While the list of stocks currently available for trade on the new exchange is short, the planned introduction of additional US stocks would definitely help a larger number of Indian investors benefit from investments in top US companies.