Explained: For future dollar expenses, should you invest in US markets now? | Explained News,The Indian Express

Over the last 11 months, the rupee has depreciated almost 10% against the dollar. What it means is that if an individual has to send $10,000 for his child's education fee in August 2022, he or she will end up paying Rs 8 lakh compared to Rs 7.2 lakh last year.

As the rupee hit 80 against the US dollar this week, one of the big concerns among Indians who expect to spend in dollars in the future — on account of children’s higher education, travel etc — is how they can hedge themselves against further depreciation of the currency, which would increase the rupee cost of these dollar-denominated expenditures. If that makes a case for taking exposure in US markets, there are various factors to consider here too — talks of recession, and the US capital market turning volatile amid high inflation and interest rate hikes. So, does it make sense to invest abroad now?

Over the last 11 months, the rupee has depreciated almost 10% against the dollar. What it means is that if an individual has to send $10,000 for his child’s education fee in August 2022, he or she will end up paying Rs 8 lakh compared to Rs 7.2 lakh last year.

Hypothetically, if rupee were to depreciate 20% over the next 10 years, it would increase the rupee cost of education by 20%. However, if one were to invest in international fund of fund schemes investing in the US, offered by domestic mutual funds, or direct equities or even in US debt, investors can clearly hedge themselves against the impact of depreciation.

“We believe the US dollar will always be stronger than the Indian rupee as traditionally India is a current account deficit economy and the US is a current account surplus economy. Also, there is a huge interest rate arbitrage between US and India,” said Nasser Salim, Managing Partner at Flexi Capital, a boutique investment services firm.

Experts expect the dollar to strengthen further against all other currencies, and say it is important for retail investors to protect themselves against future depreciation in the rupee – especially if they plan any other major expenditure in dollars.

https://indianexpress.com/article/explained/for-future-dollar-expenses-should-you-invest-in-us-markets-now-8044461/


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