How Currency Fluctuations Impact NRI Investments
For non - Resident Indians (NRIS), the investment in India
provides attractive opportunities from equity and equity funds to properties.
However, a factor that is often not noticed - but that can significantly
affect the return - the currency has ups and downs. Since NRI earns in foreign
currency, but invests in rupees (INR), all changes in the exchange rate can
increase or decrease losses.
Understanding Currency Fluctuations
Currency fluctuation refers to the change in the value of
one currency against another. For NRIS, the exchange rate between their
domestic currency (such as USD, GBP, AED) and Indian Rupee plays an important
role in determining the actual return.
Example:
If you invest 1 USD = ₹80, but later 1 USD =, ₹85 when you
redeem, you get extra in the terms of the dollar.
Conversely, if the rupee becomes strong by ₹75, the return
in foreign currency can decrease despite the profits in INR.
Positive Impact of Currency Fluctuations on NRI Investments
• Weaker Rupee = Higher Returns in Foreign Currency:
When the rupee depreciates against the currency of your
home, the value of your Indian investment increases when it converted back.
• Opportunity for Remittance Benefits:
NRIs can remit funds home when the rupee is weak to maximize
value in INR.
Negative Impact of Currency Fluctuations on NRI Investments
• Strong Rupee: low return in foreign currency
fluctuations:
Although your investments are increasing in INR terms, a
strong rupee can reduce the currency return.
• Uncertain Benefits:
The fluctuations can lead to unexpected results, especially
for short-term investments.
Which Investments Are Most Affected?
• Equity and Mutual funds: Profit can be amplified or
reduced based on a rupee’s performance.
• Fixed deposit (NRE/NRO): Interest earnings may vary
in value when it is converted back.
• Real Estate: A Long stop period can highlight the
Property value for the instability of the currency.
How NRIs Can Manage Currency Risk
1. Diversity in investment: Spread in asset classes
to balance risks.
2. Time Remittances Wisely: Change the currency when
adapted to the exchange rate.
3. Use Hedging Instruments: Forward contracts and
currency futures can be locked at prices.
4. Focus on Long-Term Investing: For a long time,
short-term fluctuations are low.
Conclusion
For NRIS, there is a risk and an opportunity in the currency.
By understanding currency beaches and using smart strategies, NRIS can protect
its money and even increase its return. Ignoring this factor can change a
profitable investment disappointingly when converted to foreign currency.
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