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IDR Investments - How to Invest in Indian Depository Receipts

Updated on April 30, 2011

What is IDR ?

IDR (Indian Depository receipts) has reached the market for the first time. Standard and chartered bank started in 1958 is issuing IDR. even though ID..was developed 5 years back; it came into practice now only.

IDR _ A New Mode of Investment

IDR is a receipt representing the complete or partial shares of a foreign country. An Indian depositary will be appointed by the issuing company to give the receipts to the investors. The original shares representing these receipts will be under the foreign custodian. The issuing company decides the number of shares in each representing IDR.for example in case ofStandard Chartered Bank, 10 IDR is equal to a share.

IDR is issued in Indian Rupees. So IDR can be traded like shares, which is traded in Stock Market. Now like shares IDR is also available in demat accounts. If you need IDR in certificate form you will get it by applying for it.

Even though it is traded like shares in stock market IDR is not a share. Shareholder means the company owner, IDR is receipt that represents the share.IDR can be converted into share, but is possible only very rarely. The rights of IDR holder and the share holder are different. The rights of IDR holder will be made clear by the issuing company. The issuing company will sign a contract about this with the depositor. Based on the contract rights will be given for voting and participating in rights issue.

The contract made by each company with the depositor based on the issuing nation’s rules.IDR holder must pay fees for the depository services, which will be decided by the depository. Normally the value of IDR will be related to the value of share of the issuing company, so there will be influence by the variations in foreign money trade on IDR values.

Indian Depository Receipts
Indian Depository Receipts

IDR and Shares - A comparsion

Like shares there are risks in IDR trade too.IDR is not related to the core value of the issuing company which means IDR is not secure with any deposits. As indicated before if needed IDR can be converted into a share for this an application should be submitted to the reserve bank and only with their permission it can be converted into a share. Once it is converted to a share it can be traded only in the foreign exchange where the issuing company’s shares are listed. Partial conversion is not permitted.IDR can be converted into share only after a year following the issue.

IDR’s rise in long term capital investment is not exempted from tax. Based on cost indexation tax should be paid for rise in long term capital investment. Since it is not considered as security there is no need to pay a securities transaction tax. Like shares if it is kept for more than 12 months then it will be considered as long term investment. The tax is not applicable for short term investments. But tax should be paid based on Tax Slabs. Though there is no tax for profit distribution, in IDR. dividends, tax should be paid for the income from it, to the owner. Tax should be paid here if income is obtained from foreign exchange trade after converting it into a share.

If the issuing company dissolves in another company, then the IDR.holder will have all the rights as that of a share holder.

It was only after April 2006 that permission was given to the foreign countries to issue I.D.R.the work was started from 2005 onwards. Some changes were made in issue rules in 2009.the residents in India has got certain advantages with the coming of IDR.issues.based on the present law, it is impossible to buy foreign securities above 200000$/year. There are no such regulations in IDR and not only that no foreign trading account is needed. The IDR holder will also get all privileges like profit dividend, share rights and bonus.

Standard Charted Bank issuing IDR.

Standard Charted Bank, one of the oldest banks in the world, started its services in India 150 years ago. They wish to strengthen its services in India, so they came with the IDR issues to collect money from Indian market. They aim to collect 50 to 70 crore dollars and the issue of IDR was started from May 25th onwards. The last date of issue will be 28th.5% discount will be given to the retail investors who apply for this.

The index price of IDR is between 98 to 137 rupees. The P.E in 2009 income is in the range of 12.7 to 17.7.The P.E of nationalized banks in India is 11 and that of private banks is 24.


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