Domestic retail investors will be able to
transact on the platform under the liberalised remittance scheme (LRS) limits
prescribed by the Reserve Bank of India (RBI), which allow a resident
individual to remit up to $250,000 (Rs 1.86 crore) per financial year.
The move will allow domestic investors to
gain direct exposure to the world’s biggest companies, such
as Alphabet Inc, Amazon Inc, Tesla Inc, Meta Platforms,
Microsoft Corporation, Netflix, Apple, and Walmart which are all listed in
the US. The list of other companies will be added later
on.
This is going to be a big moment for
diversification in US markets. It will be quite interesting to
witness how the MF industry finds competition and it innovation to get clients
glued to their investments vehicle. Most of the investors as of today prefer to
use their own choices over stock picks rather than getting guided by some other
company. This is the place where Mutual Funds in the Passive segment
will face the heat of competition. Investors will be able to
hold depository receipts in their own Demat accounts opened in GIFT City and
will be entitled to receive corporate action benefits pertaining to the underlying
stock.
This year from January onwards we all know
that passive investments in overseas funds have taken setbacks due to the limit
issues. Currently a limit of $1 billion per fund house, and $7 billion for the
mutual fund industry on investment in overseas assets. There is a separate
limit of $1 billion, under which mutual fund schemes can invest in
exchange-traded funds or ETFs listed overseas. These limits are not set by SEBI
though; they are indirectly set by the Reserve Bank of India. Hence it’s
expected that this new mode of investment will lead to a significant appetite
from the investor community.
At the same time investors need to be careful
about the stocks they buy since in India most investors don’t read much balance
sheet and neither have they preferred to invest a significant amount of time
for knowing details about stocks. Hence these investors need to now understand
the underline stocks and their intricate deals and transactions so that if any
blue moon surprise pops up the investor should be capable enough to navigate
the same
The NSE IFSC will allow investors
to buy shares through fractional ownership. This will help investors get
exposure to stocks, such as Alphabet and Tesla, which have high absolute costs.
For instance, one Class A share of Alphabet, the parent company of Google,
currently quotes at $2,738 (over Rs 2 lakh) and that of Tesla quotes at $714
(over Rs 50,000).
Coming to the taxation part it is being found
that these investments would be treated on par with any other foreign stocks.
This means slab rate for gains made within 2 years of purchase and 20% with
indexation for gains made after a 2 year holding period. Initially trading in 8
big tech giants like Alphabet and Amazon will start on 3rd March. Eventually,
the 50 largest US companies will be listed. The government provides for several
benefits, such as exemption from capital gains, securities transaction tax
(STT), and stamp duty on trades coming from GIFT. All these benefits will also
be extended to domestic investors transacting in GIFT City. However,
investors will have to pay taxes on profits that get repatriated from
the GIFT City account to the onshore or regulator bank
account. How can you invest? Resident Indians can remit up to
USD 250,000 to GIFT City through the RBI's LRS (Liberalised Remittance Scheme)
route. There you can open a brokerage account and invest.
Coming ahead we will find India INX, a subsidiary of BSE in IFSC, has announced that it would soon facilitate buying and selling in international equities from over 130 stock exchanges across 31 countries including the US, Canada, UK, Europe, Australia, and Japan, at a significant cost advantage to the investor.
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