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What is the Indian Depository Receipt

26 Sep 2023

Introduction

If you are eager to invest in overseas companies, there are multiple ways to do that. For example, you can buy shares in an overseas company with a Demat Account if you have a bank account in the country where the company is listed. However, it is not an easy process, at least not as easy as the Indian Depository Receipt. If you don't know what IDR is, keep reading this blog to understand IDR most simply.

What is an Indian Depository Receipt?

Indian Depository Receipt is the best way to invest capital in foreign companies. It is issued by a domestic depository authorized by the issuer company and registered with SEBI. IDR was introduced to let Indians buy shares in foreign companies, as foreign companies are not allowed to list on the NSE or BSE. There were ways like Mutual Funds with foreign corpus or the one mentioned in the introduction, but these processes are risky or time-consuming for an Indian individual.

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But with IDR, the foreign companies can issue their Receipts equivalent to their shares listed in their respective exchanges. So, IDR not only allows investment in foreign companies but gives equal rights in voting, dividend issues, and bonus issues. However, the taxation scheme of IDR is what makes a difference. If you gain a profit on an IDR in a short-term transaction (selling within a year), you will be subject to income tax at regular rates. However, if you make a gain on a long-term IDR investment, then you will be taxed at 10% without indexation and 20% with indexation.

How do you buy the IDR of your Desired Overseas company?

Now, to buy the IDRs of your desired company, its IDRs should be listed on Indian Stock Exchanges. A foreign company can only record its IDRs if it has a market capitalization of US$100 million or more in the last three years. It should also have US$50 million of pre-issued paid-up capital and free reserves.

If the company meets all these criteria, it can list its IDR in Indian Stock Exchanges. Moreover, you can buy the IDRs of the company when it opens its issues for a fixed period. After the SEBI approves the company's Draft Red Herring Prospectus (DRHP), it is done. The IDR you buy will be reflected in your Demat Account directly.

Conclusion

IDR is an exceptional way to make a foreign investment. However, currency fluctuation is a crucial point to keep in mind when buying an IDR. So, do a thorough analysis before buying an IDR. Moreover, if you want to purchase overseas or domestic shares, Motilal Oswal is the best option, with an opportunity to open a free Demat Account.

 

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