Indian investors looking to diversify their investments in global markets now have many options.With the NSE International Financial Service Centre (IFSC) receiving approval to allow trading in select US-based stocks, Indian investors can now buy popular US stocks, including Amazon, Apple, Alphabet, Microsoft, and Tesla. However, BSE IFSC (India INX Global Access), launched by BSE as India’s first international exchange in 2017, allowed the facility last year, but through a different model.
Here's a comparison of the two facilities, as well as information on how to invest through them.
How They Differ
There are some significant differences in how both work and what they offer.
- Investors can buy through the direct share buying facilitator route on the BSE IFSC (India INX), while the NSE IFSC uses the depositary receipt (DR) route.
- BSE IFSC allows investors to buy foreign shares directly from more than 130 stock exchanges across more than 31 countries, while NSE IFSC currently only has US stock investing options. In effect, BSE IFSC provides more options to investors.
- The NSE US stock DRs will be held in Indian demat (opened separately with an IFSC broker) and the BSE IFSC stocks will be held with the foreign custodian or broker.
How Can Indian Investors Use BSE IFSC (India INX) to Buy?
BSE has partnered up with over 130 stock exchanges that operate across 31 countries in America, Europe, Asia-Pacific, and Africa. Some of the partnered stock exchanges are NYSE, Nasdaq, London Stock Exchange, Canadian Securities Exchange, Toronto Stock Exchange, BATs Europe, Euronext France, Tokyo Stock Exchange, Moscow Stock Exchange, and others.
BSE IFSC, which is regulated by the International Financial Services Authority (IFSCA), offers investors 22-hour trading in a range of financial market products such as index and single stock derivatives, commodity derivatives, currency derivatives, and debt securities, said Vikram Kasat, head of advisory at Prabhudas Lilladher, a financial services company.
Investors who wish to invest in foreign markets using BSE IFSC can do so by following these three simple steps:
- Open up an account with India INX and complete the "know your customer" (KYC) process. The KYC records will be taken from the CKYC database, if available; otherwise, you will have to submit the identification documents manually. You will also need to submit the US W-8BEN/W-8BENE form. This form is called the Certificate of Foreign Status of Beneficial Owner for United States tax withholding and reporting.
- The funds will have to be directly transferred using the Reserve Bank of India’s (RBI) LRS (Liberalized Remittance Scheme) by your broker’s bank. BSE IFSC has partnered up with five banks: Kotak Bank, HDFC Bank, IndusInd Bank, IDFC Bank, and ICICI Bank. For other banks, you will need to fill out an A2 Form with the purpose code S0001 at the bank branch.
- On a successful wire transfer, the foreign broker will credit your trading account and you can then start trading. For investors' convenience, BSE IFSC provides a trading terminal through Android and iOS apps.
- The shares and money are not in BSE IFSC’s custody, but with the foreign custodian or broker, as the case may be.
"BSE has enabled its members to operate in the IFSC. The clients who wish to access these will usually need a separate brokerage account. As of now, the best way is to look at brokers who have already registered themselves at IFSC and get yourself connected to global investments. In fact, BSE IFSC has recently enabled the Moscow Exchange and might offer interesting opportunities for people seeking to invest in distressed Russian markets, "says Abhishek Banerjee, manages Small/microcap & ESG smallcases, and is Founder, Lotus Dew Wealth & Investment Advisors.
How Can Indian Investors Buy Using the NSE IFSC?
Trading in index derivatives, stock derivatives, currency derivatives, commodity derivatives, and debt securities started from 2017 onwards, but the NSE has taken a rather more direct approach to allow Indian investors to invest in specific US securities for now.
"IFSCA regulates activity in IFSC where a broker may register to enable trading for domestic investors who wish to invest abroad and FPIs (foreign portfolio investors) who want to invest in India. The NSE has launched depository receipts for 50 US stocks where they purchase the shares on behalf of clients and deposit them with a global custodian to offer a payoff similar to the underlying stock but as a portion of a complete stock, "says Banerjee.
With the help of market makers, the NSE will issue unsponsored depositary receipts (DR) against the original share. These DRs will have the same value as the original share and will also get all the corporate benefits that the original share will get. Also, these DRs will be held in a special demat account which investors will need to open specifically with an IFSC-registered stockbroker. For a step-by-step guide on how to go about it, read here.
