Currency risk inevitable in global investments, but diversification offers strong hedge

With the Indian rupee hitting fresh lows over the past few months, investors are understandably concerned around the currency depreciation risk in global investments. However, speaking at a panel in Moneycontrol’s Mutual Fund Summit, held in Bangalore on October 27, Vaibhav Shah of Mirae Asset Investment Managers (India) and Neil Parikh, CEO at PPFAS noted that the risk can be managed effectively via diversification.

"The currency risk will be there," said Parikh, "But the diversification helps reduce the risk. When you're investing in different markets across the glove, you're actually reducing the portfolio risk. On the currency depreciation front, there's nothing an investor can do about it."

However, Shah added that at the current juncture, the currency risk is actually in investors' favor right. "If the rupee is likely to depreciate, global investing already gives investors a two to three percent advantage to begin with, so there is nothing to worry about on that front," said Shah.

He added that, to him, global investing also makes sense because, despite India being one of the best-performing markets over the past 10 to 15 years in rupee terms, the returns in dollar terms have been more moderate, only around eight to nine percent.