As rupee slides where to invest

As rupee slides where to invest

  • It is well known that in a sliding rupee scenario, the exchange rate will work in the investor’s favour as you will get more rupees in exchange of the dollars invested in the fund. The depreciation in the rupee against the US dollar has been to the extent of 3.5-4% per annum on an average over the long term and this supplements the returns earned from an international fund in rupee terms.
  • Experts say that for dollar-denominated expenses in the future, allocation to India-based US funds would help offset the currency fluctuation risks. However they also advise you to allocate a portion to Indian equity markets which at this stage would give the corpus a chance to benefit from revival in the Indian economy and markets.

Gold funds

  1. The domestic price of gold is a function of the prevalent international price and the exchange rate at which it is imported. A depreciation in the rupee pushes up the landed price of gold.
  2. Typically, households buy gold jewellery over time with the intent of gifting them on the marriage of a child or for other purposes.
  3. Any change in designs and preferences will mean that some value is lost when the jewellery is remade.
  4. A more efficient option would be to accumulate units of gold funds or gold exchange-traded funds (ETFs) over a period of time and redeem the units at the prevailing price of gold when it is required.
  5. The funds so realized can be used to buy and gift gold in the form preferred, without the issues related to purity, storage, insurance and others that come with holding physical gold.
  6. The price of gold at which the units will be redeemed and the price at which the jewellery or other forms of physical gold will be purchased will both be the prevailing price of gold. So you will not face a price shock from currency movements or other demand and supply factors when you need to meet the expense.
  7. Also, it is advised that for a rigid need for gold, the best way to accumulate is through paper gold such as gold funds and ETFs.
  8. Also, using an asset class like equity would help in meeting the need if the goal is well into the future which may give the investor a better corpus and greater flexibility in how they choose to use the accumulated funds

What Experts Suggest?

  • Given the current turmoil in currency movements, gold prices as well as net asset values of international funds will see volatility.
  • Investing periodically into these funds using systematic investment plans (SIPs) can help in taking advantage of interim price movements and also bring down the cost of acquisition.
  • If there is no specific expenses required to be met, investing in the two funds will provide diversification benefits to the portfolio, since they have low correlation with traditional investments such as equity and debt.
  • An exposure of around 15% to each asset class can give meaningful diversification benefits.

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