GDR (Global Depository Receipt)

What is a Global Depository Receipt?

The Global Depository Receipt means the receipts, which are negotiable instruments of finance, issued by the depository bank. It also represents the shares of the foreign company. The certificates or receipts are traded in the international stock exchanges and allow companies from the Indian emerging markets.

For the Indian Companies, the GDRs are very important to access the international share market. It also gets their shares listed in foreign companies, such as the Luxembourg Stock Exchange or the London Stock Exchange.

Features of GDRs

The features of Global Depository Receipts are given below:

• Foreign Currency Denomination: The GDRs are issued in a foreign currency that can be converted. The underlying shares can stay in the local currency of the issuer.
• Negotiable Instrument: The GDRs are traded freely on the stock exchanges like regular securities.
• Conversion to Shares: You can convert the GDRs into shares after a lock-in period of 45 days. You can trade them with the domestic exchanges.
• Trading in multiple countries: You can trade the GDRs in multiple countries. They can also be denominated in different convertible currencies.
• Dividends and Bonuses: The holders of the GRDs can receive the bonuses and dividends according to the underlying shares.
• Access to Global Capital: The GDRs are used by the Indian Companies to raise funds from international investors.

Advantages of Global Depository Receipts

Here are a few of the advantages of the GDRs:

• Portfolio Diversification: Investors get exposure to foreign markets without being subject to the complex regulations.
• Cost-Effective: They are simpler and cheaper than international brokerage accounts for the investors.
• Tax Benefits: Capital gains tax is not included for non-residents who transfer the GDRs of foreign companies.
• Increased Liquidity: It can enhance the share liquidity by listing on the international exchanges.
• Access to Global Investors: The company attracts a large part of the international investors.
• Enhanced Credibility: If the company is listed on the global exchanges, then it will boost its reputation.
• No Fees for Safekeeping: The investors can avoid the custody from outside of India and charges for safekeeping.