Companies Act Section 2(48) Indian Depository Receipt

Indian Depository Receipt (IDR) Section 2(48)

Indian Depository Receipts (IDRs) are financial instruments issued in India, representing shares of a foreign company, traded on Indian stock exchanges in INR, allowing Indian investors to invest in foreign companies.

Key Characteristics of IDRs:

1. Structure and Issuance:

IDRs are issued by Indian depositories against a specific number of underlying equity shares of a foreign company deposited with them.

Each IDR represents a certain fraction of the underlying shares of the foreign company, typically in a fixed ratio (e.g., 1 IDR = 1 underlying share).

2. Listing and Trading:

IDRs are listed on Indian stock exchanges, such as BSE (Bombay Stock Exchange) and NSE (National Stock Exchange), facilitating trading and liquidity for investors in the Indian capital market.

Trading occurs in Indian rupees (INR), shielding investors from currency exchange risks associated with direct investment in foreign stocks.

3. Regulatory Framework:

IDRs are regulated by the Securities and Exchange Board of India (SEBI) under guidelines and regulations governing issuance, listing, trading, and disclosure requirements.

SEBI mandates compliance with norms ensuring investor protection, transparency, and corporate governance standards applicable to IDRs and their issuing companies.

Benefits of IDRs:

1. Diversification: 

IDRs enable Indian investors to diversify their investment portfolios by accessing foreign companies listed on overseas stock exchanges, thereby spreading risk and leveraging global investment opportunities.

2. Currency Risk Mitigation: 

Investments in IDRs are denominated in Indian rupees (INR), shielding investors from fluctuations in foreign exchange rates associated with direct investment in foreign stocks traded in foreign currencies.

3. Access to Global Markets: 

IDRs broaden access to global markets and enable participation in the growth potential of leading international companies across sectors that are not widely represented in the Indian stock market.

Legal and Compliance Considerations:

1. Companies Act, 2013: 

While IDRs are not specifically defined under the Companies Act, their issuance and trading activities are subject to compliance with relevant provisions of Indian corporate laws, securities regulations, and SEBI guidelines.

2. Investor Protection: 

SEBI regulations ensure transparency, disclosure of material information, and adherence to corporate governance norms by IDR issuing companies, safeguarding investor interests and maintaining market integrity.