In earlier times, studying abroad was like a dream for Indian students. This dream of very few people could be fulfilled. But today it is no longer a big deal for many Indians. Many students of India are not only studying in countries like America but also doing good jobs. Today, plans like the Liberalized Remittance Scheme (LRS) are available, through which it has become very easy to send large sums abroad for education related needs. Funds are usually deposited in India for the education of the child and then sent to pay the tuition and living expenses of the child studying abroad.
However, investing in dollar denominated assets (assets that are denominated in dollars) has several advantages:
- We get the benefit of investing in a large, developed and strong market.
- Investing in the US has the advantage of diversification, as you are able to invest your money in different places. They also do not have much to do with the domestic market.
- Keeping money in dollars eliminates risks like exchange rate and depreciation of rupee against dollar.
Let us understand this with an example. Suppose, a family A wants to send its child abroad for studies after eight years. Keeping this in mind, the family is planning how to save and invest to meet the target amount and then transfer it to their child studying abroad. Investing part or all of the savings in the US market for this purpose will not only provide diversification benefits but also reduce exchange rate risk.
There is less volatility in the US market
The US market has historically been less volatile on average than emerging markets such as India. Apart from this, returns have also been better in the last decade. As we know, the final amount that an individual can remit abroad depends on the exchange rates prevailing at the time of fund transfer. Therefore, fluctuations in the exchange rate can significantly affect the money deposited over a long period of time while transferring. On the other hand, in the US, accumulated capital has nothing to do with exchange rate risk, as funds for dollar-based expenses are deposited in dollars. Not only does this benefit in long-term investment goals, but investing in the US for short-term goals is equally beneficial.
Let us understand this with another example.
Mr. B has a child who has got admission in an American university. He will have to bear his expenses for the next three years. In this case, suppose a fund is already deposited in India. This fund will be affected not only by short-term interest rates in the domestic market, but also by short-term market risk. Apart from this, there will also be exchange rate risk in this. Conversely, investing in US-secured securities protects your capital and avoids the risk of short-term exchange rate fluctuations. In this way, a person investing in the US market can take advantage of his investment in many matters including higher education.
(Article: Mr. Viraj Nanda, CEO, Globalise)
Get Business News ,, latest India News ,, and other breaking news on share market, investment scheme and much more on Business Khabar. Like us on Facebook, Follow us on Twitter for latest financial news and share market updates.
.