Advantages of ADR

American depositary receipts, popularly known as ADR are those deposit receipts which are issued by a company which is not located in America but it is listed in its home country and the company lists its shares in the markets of United States of America. Companies desiring to have ADR have to deposit shares in the depositary bank located in America and the depositary bank in turn issue ADR to the investors located in America. Given below are some of the advantages of ADR –

  1. Companies which want to have global investor base can opt for American depository receipt because directly issuing shares in American market is a cumbersome procedure involving lot of formalities and hence it would be very difficult and time consuming procedure, and in order to avoid the best option for such companies would be to issue ADR.
  2. Investors who are looking for international diversification also gets the option of diversifying their portfolio without going the hassles because ADR give the option to investors to invest in their own country even if securities are of foreign countries.
  3. America being a developed market the opportunities for growth is less in America and hence investors looking to participate in double digit growth of emerging economies can invest in ADR and reap benefits without the risk of going directly into the foreign markets which involves lot of risks like transparency, regulatory environment and cultural problems and therefore ADR is very good option for such investors who want to earn good returns without taking too much risk.
  4. American depositary receipts holders can have the benefit of currency fluctuation if it is in their favor when they receive dividend and sell their ADR holdings.
  5. Companies which are short of funds and require money for future growth can raise money through ADR route because many times in developing countries there is shortage of funds and also people are not interested in equities as they prefer fixed income securities which makes it difficult for a company to raise funds through equity market and that’s where American deposit receipts can be helpful for the company seeking funds.
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