Many Indian investors are now looking outside conventional stocks and mutual funds as global markets grow more reachable. Investing in foreign currency is one such alternative. It can be a clever approach to expose yourself to world economic trends and guard your money from rupee devaluation.
To help you decide if investing in foreign currency is appropriate for you, we’ve put together a brief but comprehensive guide.
Foreign Currency Investing: What Exactly Is That?
Investing in foreign currencies is putting your money into assets connected to US Dollar (USD), Euro (EUR), British Pound (GBP), or Japanese Yen (JPY).
Either protecting wealth from rupee weakness or making money from changes in the value of currencies is the aim.
One can accomplish it with ETFs, global mutual funds, foreign currency fixed deposits, or currency trading.
Why Should One Think About Foreign Currency Investing?
- Guards your money against devaluation of the rupee.
- Provides diversity away from Indian markets.
- Beneficial whether your future overseas spending will be for travel, education, etc.
- Lets you profit from robust world economies like those of the US or Europe.
- Usually serves as a hedge in home markets during uncertain times.
Common Methods of Foreign Currency Investing for Indians
The most often used and legally sound choices are here:
- Global Mutual Funds and ETFs
- Invest in foreign exchange denominated international funds.
- Simple investments available through Indian mutual fund systems.
- For instance: international index funds and US-oriented ETFs.
- Invest in foreign exchange denominated international funds.
- Fixed Deposits in Foreign Currency
- For NRIs, NRE and FCNR accounts let USD, GBP, or EUR be deposited.
- Safe and with monetary benefits, fixed returns.
- For NRIs, NRE and FCNR accounts let USD, GBP, or EUR be deposited.
- LRS, or Liberalised Remittance Scheme
- Every year, resident Indians can send up to $250,000 overseas.
- Invest in ETFs, world stocks, or even real estate using this tool.
- Has to be announced and noted according to RBI policies.
- Every year, resident Indians can send up to $250,000 overseas.
- Trade of Money
- Trade pairs USD/INR, EUR/INR using SEBI-registered systems.
- High risk, fit only for seasoned investors.
- Not intended for long-term investment—more for traders.
- Trade pairs USD/INR, EUR/INR using SEBI-registered systems.
Notables to Remember
Think about the following when investing in foreign currency:
- Movement in exchange rates can affect returns in terms of money.
- Rules: Follow RBI and SEBI guidelines regarding foreign investments.
- Taxes: Indian law taxes gains from foreign assets.
- Use SEBI-registered and RBI-approved brokers/platforms.
- Watch for forex conversion fees, management fees, and transfer charges.
Indian Tax Rules
- Capital gains tax rules tax gains from foreign investments.
- Not one tax advantage like Section 80C.
- As you file ITR, income has to be reported in your section on foreign income.
- Agreements for double tax avoidance (DTAA) can help one avoid paying taxes twice.
Who Should Think About This?
- Investors having worldwide financial objectives (study abroad, relocation, etc.)
- Those who wish to vary from assets based on Indian rupees.
- Those having medium to high risk tolerance.
- NRIs wishing to handle money in several currencies.
Final Notes
If done with proper planning, investing in foreign currencies is a wise tactic. It prepares for worldwide objectives, helps diversify your portfolio, and lowers local risk. Start small, follow the guidelines, and concentrate on long-term advantages for the best outcomes.
