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What if you want to invest in shares of companies based overseas? Traditionally, you would need a Demat account linked to a foreign bank account and funds in that currency. Although the Reserve Bank of India permits investments up to US$250,000, managing international accounts and compliance requirements can be complex.
Another route is investing through a domestic mutual fund that allocates its corpus to overseas assets. However, these investments are exposed to currency fluctuations as your rupee investment is converted into a foreign currency before reaching international markets.
To simplify this process, Indian depository receipts emerged as an alternative. They function like equity shares but represent ownership in foreign companies with operations in India. Through IDRs, investors can access global firms without navigating foreign regulations or accounts.
Key Takeaways
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Indian Depository Receipts (IDRs) allow Indian investors to invest in foreign companies through the domestic market without opening overseas accounts.
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IDRs are denominated in Indian rupees and traded on recognised Indian stock exchanges under SEBI regulations.
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Investors in IDRs are entitled to corporate benefits such as dividends and voting rights, similar to equity shareholders.
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Foreign companies issuing IDRs must meet eligibility criteria, including market capitalisation, profit history, and regulatory compliance.
What is an Indian Depository Receipt?
An IDR is in Indian rupees and is created by a domestic depository (custodian of securities registered with SEBI (Securities and Exchange Board of India). It is issued against the underlying equity, which is held by overseas custodians, not domestic depository. It enables foreign companies to raise funds from the Indian securities Markets.
As foreign companies are not allowed to list on Indian equity markets, IDR is a way to own shares of those companies. These IDRs could be listed on the Indian stock exchanges. Through the IDRs, you could directly invest money into international companies.
Since these offshoots are not listed, the firms offer shares to Indian investors. Standard Chartered Plc is the first company to come out with an IDR issue.
Indian Depository Receipts are based on American Depository Receipts, introduced in 1927. The Securities and Exchange Board of India (SEBI) first operationalised the rules of IDRs. The Reserve Bank of India (RBI) issued operations under the Foreign Exchange Management Act.
The Indian depository receipts had their inception on the BSE and the NSE on June 11, 2010.
Current Market Status: While the regulatory framework exists, the IDR market has been inactive recently. Standard Chartered PLC was the first and only company to issue IDRs in India, but these were delisted in 2020. Currently, no global tech giants (like Apple or Google) have listed IDRs in India, though the option remains open for them to do so in the future.
Who is eligible to issue Indian Depository Receipts?
The foreign issuing company shall have pre-issue paid-up capital and free reserves of at least US$50 million and have a minimum average market capitalisation (during the last three years) in its parent country of at least US$100 million.
It should have a continuous trading record or history on a stock exchange in its parent country for at least three immediately preceding years. It should have a track record of distributable profits for at least three out of the immediately preceding five years.
It should be listed in its home country, not be prohibited from issuing securities by any regulatory body, and have a good track record of compliance with securities market regulations. The size of an IDR issue shall not be less than Rs 50 crores.
An overseas custodian bank is a banking company outside India. It has a place of business in India. It acts as custodian for the equity shares of the issuing company, against which Indian depository receipts are proposed to be issued, in the underlying equity shares of the issuer are deposited.
A domestic depository is a custodian of securities registered with SEBI and authorised by the issuing company to issue IDRs. A merchant banker is registered with SEBI, who is responsible for due diligence and through whom the draft prospectus for issuance of the Indian depository receipt is filed with SEBI by the issuer company.
IDR issue process
As per SEBI guidelines, the Indian depository receipts will be issued to Indian residents much the same way as domestic shares are issued. The process involves the issuer company making a public offer in India, and residents can bid precisely the same way as they bid for Indian shares.
The issuing process is the same. The company needs to file a draft red herring prospectus (DRHP), which would be examined by SEBI. After SEBI gives its approval, the company sets the issue dates and files the document with the Registrar of Companies. Following this, the company goes ahead with marketing the issue.
The issue is kept open for a fixed number of days, and investors can submit their application forms at the bidding centres. The investors bid within the price band, and the final price would be decided after the closure of the issue.
The receipts would then get allotted to the investors in their Demat account as is done for equity shares in any public issue.
Key Features of IDR
Indian Depository Receipts offer investors a structured way to access foreign-listed companies through the domestic market. They follow a regulated issuance framework that ensures transparency and easier participation for retail investors.
Key features include:
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Regulated Framework: IDRs are issued under SEBI guidelines, ensuring defined eligibility norms, disclosure standards, and investor protection measures.
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Underlying Shares: Each receipt represents a specific number of shares held with an overseas custodian on behalf of investors.
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Trading and Settlement: They trade on Indian exchanges like any listed security, with settlement handled through established depository systems.
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Corporate Benefits: Investors receive dividends and other entitlements similar to those offered to shareholders of the foreign company.
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Accessibility: IDR enables domestic investors to diversify globally without dealing with offshore accounts or foreign regulations.
Benefits of Indian Depository Receipts
Investors often seek instruments that enable international exposure without the administrative complexity of foreign market participation. Indian depository receipts serve this purpose by offering a structured mechanism for investing in the equity of overseas companies.
Key benefits include:
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Access to Foreign Corporations: IDRs allow investors to participate in the performance of global companies through domestic exchanges.
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Simplified Investment Framework: Transactions occur in Indian rupees and through the existing trading infrastructure.
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Regulatory Oversight: SEBI’s regulatory framework ensures disclosure, governance, and investor protection standards are maintained.
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Entitlement to Corporate Benefits: Holders receive dividends and other corporate actions proportionate to their holdings.
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Enhanced Diversification: Exposure to international markets supports risk distribution and portfolio stability.
IDR taxation and equity shares
There is a fair bit of similarity between IDR and equity shares. IDR holders almost have the same rights as shareholders. You could get dividends, bonuses or rights issues as and when the company declares them. While you don’t get voting right directly in case of IDR but you can send your voting instruction back to the Depository, telling them how you want to vote.
However, since IDRs are not considered "equity shares of a domestic company" under Section 111A of Income Tax Act, tax treatment for them is different from equity shares. If you sell an IDR within 24 months of purchase (short-term), the gains are typically added to your income and taxed at your slab rate, since IDRs fall under the general category of "Listed Capital Assets. Dividends received from IDRs are also taxed at your slab rate. For IDRs held for more than 24 months (long-term), gains exceeding Rs. 1.25 lakh are taxed at 20% with indexation benefit under Section 112, OR 10% without indexation. However, investors should consult a tax advisor for specific guidance as IDR taxation may have additional considerations.
Can Foreign Companies Raise Funds Through the Indian Securities Market Using IDRs?
Foreign companies can raise capital in India by issuing IDRs, giving them access to the Indian securities market without listing their shares locally. After meeting SEBI’s eligibility and disclosure requirements, these companies can issue IDRs that are then listed and traded like equity instruments.
This structured mechanism enables global firms to tap into India’s expanding investor base while maintaining regulatory compliance and transparency.
Conclusion
Indian Depository Receipts provide investors with an organised route to participate in the performance of foreign companies through the domestic market. They offer accessibility, diversification, and regulated transparency. However, investors should recognise that IDRs carry certain risks. Movements in the currency of the issuing company’s home country, global economic conditions, and geopolitical developments may influence returns.
In addition, delays in corporate actions, withdrawal of depository receipts, or operational issues in the issuing firm’s home jurisdiction may affect investor experience.
Understanding these factors helps investors evaluate whether IDRs align with their risk profile and long-term financial objectives.
