Looking to invest abroad? Here are few investment options

We wrote an article regarding what one can do with the Rupee losing value against international currencies – specifically the US Dollar. There we had suggested that if one has goals of spending money abroad, e.g. for education of their children in Foreign Universities, one can consider investing in a diversified basket of international currencies. Many people wrote back asking how they can invest across various international currencies sitting in India.

Let us first look at the options available and then check the appropriateness to different individual situations.

Today, an Indian investor has the following options for this purpose.

• Under Government of India’s liberalized remittance scheme, one can invest upto US $ 2,00,000 per year. This money can be take out of the country through banking channel and invested in various investment options in various countries across the world. RBI has detailed regulations regarding this. RBI has also specified which countries are out of bound for this purpose.

- Under this facility, some of the Foreign Banks based in India allow Indians to open fixed deposits denominated in different currencies.

• There are various mutual fund schemes that invest in various investments abroad

- These mutual funds operate in similar manner as those investing in Indian markets.

Having looked at these options, let us consider the second aspect – the suitability. What should be appropriate for a particular investor’s requirements?

When you invest abroad, the investments fetch some returns. These returns come from two sources – the return generated by the investment plus the change in exchange rate. This means one is exposed to two risks – behavior of the investment and the exchange rate.

If someone has a plan to send the child to the US for higher studies, the expenses for the same would be in US Dollars. In such a case, if one has invested in US stocks or in Dollar fixed deposits, the risk of fluctuations in exchange rate between Indian Rupee and US Dollar is removed.

If your goal is long term in nature, you can consider taking exposure to foreign equity funds. However, if you are going to spend the money in next couple of years, it is better to avoid equity exposure. In such a case, putting the money in foreign exchange fixed deposits could be a good idea.

The mutual funds can be purchased with the help of your mutual fund advisors. Please take their help in selecting proper schemes as well as the operational aspects of the purchase. Fixed deposits can be done through the banks. Check with your bank if they have such a product – else you need to look for alternative.

Please remember, we have recommended this approach only in case your goals require that. We do not recommend taking a view on exchange rate between two currencies, as we do not understand that. Long-term portfolio should not be built on the basis of such speculative calls. Speculating on currencies is a difficult task. Please understand the risks involved in speculation, i.e. whether a particular country’s currency would move up or down against Indian Rupee.

- Amit Trivedi
The author runs Karmayog Knowledge Academy. Views expressed here are his personal views. He can be reached at amit@karmayog-knowledge.com.