Anyway, let's break it down:

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Currently, as an Indian investor, you can buy US stocks by:

• Directly investing through apps/ platforms (like Globalise) while sitting in India - they facilitate this by partnering with brokers in the US who are registered with the NYSE. It's very similar to how you buy stocks directly for Indian companies, but here of course, you're buying in USD on a different exchange, so you have to bear charges that come with rupee conversion + US brokerage. However, you'll also get the most options and flexibility here. 

• Invest in US index funds/ ETFs through Indian AMCs - like the Motilal Oswal S&P 500 Index Fund or Nasdaq 100 ETF. Because these invest in US stocks, the expense ratios are a little higher. You can find pros/cons of Index funds and ETFs here and here.

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The NSE IFSC is trying to make the process more accessible and cheaper. Basically, as an investor sitting in India, you can now buy US stocks from NSE IFSC (instead of New York Stock Exchange). The way this works is through unsponsored depository receipts.

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What are unsponsored depository receipts you ask?

Basically, think of depository receipts as certificates that represent shares in a foreign company (like Tesla). Tesla has issued these DRs because it wants foreign investors (like you) to invest in their company, without having to list on foreign exchanges (like any Indian Exchange - NSE/ BSE). 

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Now, say your friend owns 1 DR. Then, she issues two certificates that each represent one-half of the stock. You can then buy one certificate from her - so you now own half a Tesla stock. Since this certificate is not directly issued by Tesla, it's called "unsponsored depository receipts." So, technically you're not a direct shareholder but indirectly own the share. You still get the benefits if Tesla sees any increase in share price. It just doesn't give you the rights that a regular shareholder might get - for example - voting rights.

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That's how the NSE IFSC plans to make US stocks accesible to Indian retail investors. These receipts will be traded, validated, regulated, and secured by the NSE IFSC. Also, note that as an investor - if you wanted to buy stocks of Indian companies - you can't really buy half or a quarter of a share. But, this is possible for US stocks - which is great because US stocks tend to be costlier (especially when you convert INR to USD). Take for example Microsoft - whose share price is $290 (at the time of this writing) - which in INR is around 21,500 bucks. Buying in fractions is thus much more accessible and cheaper.

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Next, they say that you'll be allowed to invest under the purview of the Liberalised Remittance Scheme of the RBI. LRS is a framework set by the RBI under which, as an Indian resident, you can send up to USD 2,50,000 every year to buy shares/ debt/ real estate, etc. abroad. So basically, if you want to buy US stocks, you can do that under $2,50,000.

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Eventually, most investors choose to invest in US stocks to diversify their portfolio - you get exposure to a basket of completely different stocks, some of which are the world's biggest and most innovative companies like Google, Microsoft, Tesla, Apple, Facebook, etc. Further, if you're invested in US stocks, that provides some sort of a safety net in times when the Indian economy and market are not doing all that well.

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The NSE IFSC didn't provide a lot of specifics - more details are awaited on which stocks, products (like ETFs) will be available and what the entire procedure to invest through brokers/ platforms would be. Depending on the specifics, you can then take a call on which option (Direct Stocks/ Index Funds/ IFSC, etc.) might work best for you. Once we hear more about the features of the platform, we'll be sure to do a follow-up post.

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I hope NSE's statement now makes more sense!

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Thoughts or questions? Reach out to me at rujgupta@laana.club