You can now trade in US stocks with Indian stock brokers like Zerodha, Upstox, Angelone, and others. How satisfying would it feel, if this was true! However, you can still invest in US stocks or companies of any other countries with the help of depository receipts in your local markets.
What are depository receipts?
- These are the financial instruments that represent shares of a foreign company.
- These depository receipts are traded in the local market (in which it is issued) and issued in local currency.
In a scenario, if Netflix wanted to list in the Indian stock markets.
- Firstly, it will deliver a specific quantity of shares to a bank.
- Secondly, the bank will keep the shares in a custodian or a safe account.
- Finally, the bank issues a certificate or a depository receipt against those shares to investors.
What are the different types of depository receipts?
- Sponsored Depository Receipt: In this case, the issuing company delivers the securities and can be traded on the stock exchange.
- Unsponsored Depository Receipt: In this case, the shares are delivered by an investor and cannot be traded on a stock exchange.
What is an ADR?
American Depository Receipt (ADR) are issued in US markets by a non-US company, in dollars. For example: Companies like Wipro, ICICI Bank, and HDFC Bank are listed as ADRs in the US.
Why are depository receipts issued?
The companies whose shares are listed as DRs attract a wider investor base. Investors will be easily able to invest or trade in these companies that they were unable to do so earlier due to various restrictions and reforms.
What are the benefits of depository receipt?
Investing in DRs authorizes investors for dividends and capital appreciation but they do not get any voting rights.