How A Depreciating Rupee Impacts Finances In Terms Of Investing And Studying Abroad

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The rupee hit an all-time low of 77.58 against the dollar on Monday. This follows the strengthening of the US currency and continuous selling by foreign institutional investors (FIIs) in the Indian equity market. The other factors that led to the fall include the rising crude oil prices, and the higher current account deficit due to the strengthening of the dollar. 

The rupee depreciation impacts several things in the economy, such as investments, import bills, and even overseas education. 

Let us take a look at how the fall in rupee will impact investments and foreign education abroad. 

Overseas Education: As the rupee loses value against the dollar, foreign education would get more expensive. The decision to ‘study abroad’ need not be influenced by the ongoing trend of the rupee-dollar exchange rates. Aspiring students and their parents should do a proper research of the economic factors and relationship between both the countries while planning to send their children for overseas education. 

“When you are calculating how much corpus you would require, it is ideal to factor in the annual education inflation of that country, annual rise in cost of living, as well as the rate of domestic currency’s fluctuation (exchange rate risk) against the destination country’s currency. Any change in assumed education inflation of that country and/or exchange rate will demand revision of the investment plan,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.

A parent who is financially supporting a child’s education abroad from personal savings will be seriously hit, as the rupee declines more and more. If you have decided where you want to send your child, you could consider investing some portion of your investments in that country. 

“You may divide your investments into domestic and foreign investment vehicles as per your risk profile, time horizon of investments, and your personal and macroeconomic factors. On a lighter note, depreciating rupee has come as a benefit for students who are about to initiate repaying their education loan after completing their studies and getting a job abroad that pays in dollars,” says Sen.

Indian Investors In US Stock Markets: The rupee has depreciated by approximately 50 per cent compared to the US dollar in the past 10 years. So, 10 years ago, if you had invested Rs 5,000 in Nifty 500 (Indian stock market), your investment would have grown to approximately Rs 15,000 in 2022.  But, if you had invested the same 100 dollars in the S&P500 (US stock market), your investment would have grown to approximately $320 in 2022. That is more than Rs 24,000. 

“Your investments in the Indian stock market are in rupees. However, when you invest overseas (in the US stock market) it is in dollars. You first convert your money into dollar to invest in the US stock market and then back to INR when you redeem it. When the rupee depreciates against the dollar, it effectively means an additional return on your US investments. With the rupee hitting a record low against the dollar, Indian investors in the US markets will stand to benefit,” says Viram Shah, co-founder and CEO, Vested Finance, a platform that enables Indian investors to invest in the US.