Akash Jha
Introduction
There are a number of methods to invest in foreign companies if you are so inclined. For instance, if you have a bank account in the country where the company is listed, you can use a Demat Account to purchase shares in an overseas company. However, the procedure is not straightforward, at least not as straightforward as the Indian Depository Receipt. Continue reading to gain a simple understanding of IDR if you are unfamiliar with it.
What is an Indian Depository Receipt?
Indian Depository Receipts are the optimal method for investing in foreign corporations. It is issued by a domestic depository that has been authorized by the issuer and registered with SEBI. Foreign companies are not permitted to list on the NSE or BSE, so IDR was created to enable Indians to purchase shares in foreign companies. There were options, such as Mutual Funds with foreign corpus and the one described in the introduction, but they were hazardous or time-consuming for an Indian citizen.
But with IDR, the foreign companies can issue their Receipts in proportion to their listed shares on their respective exchanges. So, not only does the IDR permit investments in foreign companies, but it also grants equal voting, dividend, and bonus rights. However, what makes a distinction is the taxation scheme of IDR. If you make a profit on an IDR in a short-term transaction (selling within one year), you will be subject to income tax at the standard rate. However, you will be taxed at 20% if you realize a gain on a long-term IDR investment.
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How do you buy the IDR of your Desired Overseas company?
Now, in order to purchase IDRs from the company of your choice, its IDRs must be listed on Indian stock exchanges. A foreign company can only register its IDRs if its market capitalization in the preceding three years was at least $100 million. Additionally, it should have $50 million in paid-up capital and reserves.
If the company satisfies all of these requirements, its IDR may be listed on Indian stock exchanges. Additionally, you can purchase the company’s IDRs when it opens its issues for a limited time. After SEBI approval of the company’s Draft Red Herring Prospectus (DRHP), the transaction is complete. The IDR you purchase will be reflected in your account balance.
Demat Account directly.
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Conclusion
IDR is an exceptional method of investing abroad. However, currency fluctuations are an essential consideration when purchasing IDR. Therefore, conduct a comprehensive analysis prior to purchasing an IDR. Moreover, if you want to purchase overseas or domestic shares, Motilal Oswal is the best option, with an opportunity to establish a free Demat Account.
Also read :- Understanding Whipsaw in Trading
