July 15, 2025
4 mins read
An Indian Depository Receipt (IDR) is essentially a receipt that establishes ownership over shares of a foreign company. One important distinction is that the IDR will be denominated in Indian Rupees, thus eliminating foreign currency risk and making it easier for Indian investors to purchase them.
So how are IDRs created? Imagine that a company in a foreign country (let's say the United States) wants Indian citizens to participate in its growth. Instead of importing its shares directly onto an exchange in India (which can be tedious), a foreign company can collaborate with Indian banks.
The Indian bank (referred to as a Domestic Depository) will create IDRs that represent the foreign company's shares, while a bank in the foreign country (which we will call the Overseas Custodian Bank) will hold the actual shares in safekeeping.
There are several characteristics about IDRs that make them special to Indian investors.
IDRs are issued in Indian Rupees. This means that Indian investors can use their money that they already use every day to buy IDRs. They don't need to convert Indian Rupees to dollars, euros, or other foreign currencies, just to buy the IDR.
IDRs are listed on the Indian stock exchange with BSE & NSE. As such, investors can buy and sell them easily like any company in India. IDRs are familiar to investors.
Each IDR is associated with a specific amount of shares in a foreign company. The actual shares can be held by the Overseas Custodian Bank in the foreign company's country.
The IDRs are issued through the Indian bank that is the Domestic Depository, where it acts as an intermediary/agent of Indian investors and in foreign entity.
An actual bank in the foreign company keeps the actual shares held in safekeeping, which is the reason the IDRs in India are "backed" by the holding of actual shares.
When an Indian investor acquires an IDR, they are not actually buying the actual shares of the company; they are acquiring the IDR, which is a certificate that is linked to real shares.
IDR holders usually get dividends in Rupees if the foreign company declares them. Voting rights may also be given, but the process is handled through the Domestic Depository.
Example: If a foreign company declares a dividend of $1 per share, the Overseas Custodian Bank collects it. Then the Domestic Depository converts it into Rupees and passes it to the IDR holders.
Additionally Read: Global Depositary Receipts
Not all foreign companies can issue IDRs in India. In order to protect investors, SEBI (Securities and Exchange Board of India) has laid down certain frameworks.
The company is required to be incorporated outside India and listed on a recognised stock exchange in its jurisdiction of original incorporation.
The company is to have a minimum paid-up capital and free reserve of at least USD 50 million and also to have an average turnover of USD 100 million for the previous three years.
The company must have made profits for at least five years before the issue. This ensures that the company is established.
Its debt should not be more than twice the value of its equity. A ratio higher than 2:1 is seen as risky.
The company must comply with the laws of its home country.
The company or an associated entity cannot be prohibited by any authority from raising money.
The issue of IDRs must have a minimum size of ₹50 crore. This prevents very small or weak companies from entering the Indian market.
Example: A large Japanese car company may qualify to issue IDRs in India because it meets these conditions. But a small new company without a profit history would not qualify.
The process of issuing IDRs involves many steps and many players. SEBI oversees the entire process.
The foreign company chooses an Indian merchant banker to manage the issue. It also appoints a Domestic Depository (Indian bank) and an Overseas Custodian Bank (foreign bank).
A professional banker examines the company's overall viability sometime they will also verify compliance of the company. The foreign country must of course grant its separate approval.
The company and the banker will now prepare a DRHP. The DRHP document contains information about the company, details about the IDR issue, risks to investors and the information relating to the financial performance of the company. They send this to SEBI for review.
SEBI carefully studies the DRHP. If everything is in order, SEBI allows the company to move ahead.
The foreign company deposits its shares with the Overseas Custodian Bank. These shares are the base for the IDRs.
The Domestic Depository in India issues the IDRs linked to those shares.
The IDRs are offered to the public in India through an Initial Public Offering (IPO). Indian investors apply through stockbrokers.
After the subscription ends, IDRs are allotted to successful investors and credited to their Demat accounts.
The IDRs are listed on Indian stock exchanges like NSE and BSE and can be traded like shares.
Example: Let's say a UK-based technology company has launched IDRs in India. After completing the process, Indian investors would have acquired the IDRs in the IPO. They could then trade the IDRs on NSE just like the shares of Infosys or Tata Motors.
IDRs allow Indian investors access to shares of foreign firms without having to travel outside of its borders. For example, an Indian investor could buy a subscription to IDRs to gain exposure to a foreign company like a global car manufacturer or a technology firm.
Investing only in Indian companies can be risky if the Indian economy slows down. By buying IDRs, investors spread their risk into foreign markets and industries.
Because IDRs are in Indian Rupees, investors do not face the trouble of converting currency.
SEBI regulates IDRs. Investors get information about the foreign company in English, which makes it easier to understand.
IDRs are traded on Indian exchanges, so investors can sell them if they need money before maturity.
An investor may hold Indian bank shares, Indian IT shares, and also some IDRs of a foreign telecom company. This mix gives a balanced portfolio.
IDRs are bought in Rupees, but the real shares are in foreign money. If the value of the Rupee goes down compared to that foreign money, the dividend (profit share) that investors receive may become smaller.
The price of IDRs depends on two markets — the Indian stock market and the foreign company’s market. If the foreign company’s share price falls abroad, the IDR price in India can also fall.
Sometimes, not many people trade IDRs. This makes it harder for investors to quickly buy or sell them when they want to.
If rules or laws change in India or in the foreign company’s country, it can affect IDRs. For example, if a new tax is added on dividends, investors may earn less.
Indian investors may not get news about the foreign company as fast as local investors in that country.
Example: If the foreign company faces a sudden problem, people in that country might know first. Indian investors might hear later, which can cause the IDR price to change suddenly.
Feature | Indian Depository Receipt (IDR) | American Depository Receipt (ADR) | Global Depository Receipt (GDR) |
Issuer | Foreign company | Foreign company | Foreign company |
Target Investors | Indian investors | US investors | International investors (excluding US) |
Listing Exchange | Indian stock exchanges (BSE, NSE) | US stock exchanges (NYSE, NASDAQ) | European exchanges (e.g., London, Luxembourg) |
Denomination | Indian Rupee (₹) | US Dollar ($) | US Dollar ($) or Euro (€) |
Underlying Shares | Foreign company's shares | Foreign company's shares | Foreign company's shares |
Indian Depository Receipts (IDRs) connect Indian investors with companies from other countries. They give foreign companies a way to raise money in India and allow Indian people to invest in global businesses.
For investors, IDRs are a chance to invest outside India while still using the Indian system. But they also come with risks, especially from currency changes and foreign markets.
By understanding how IDRs work, how they are issued, and what risks they bring, investors can make smarter choices before putting their money into them.
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An Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees, issued by a Domestic Depository against the underlying equity shares of a foreign company, allowing Indian investors to invest in that foreign company.
IDRs benefit Indian investors by providing access to invest in foreign companies and international markets, aiding portfolio diversification, and allowing transactions in Indian Rupees on domestic exchanges.
A foreign company, incorporated outside India and listed on a stock exchange in its home country, can issue an IDR in India, provided it meets specific eligibility criteria set by SEBI.
Risks involved in investing in IDRs include currency risk (due to exchange rate fluctuations), market risk (from both Indian and foreign markets), and liquidity risk (potential low trading volumes).
The taxation of IDRs in India generally follows the rules for equity shares. Dividends received are taxable as per applicable income tax slabs, and capital gains from selling IDRs are taxed as short-term or long-term capital gains depending on the holding period.
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