Which Is Better ? Investing In Dollars v/s INRFind Answer Here

Summary

In this episode of 'NRI Money Clinic', Dr. Chandra Khan addresses the dilemma faced by Non-Resident Indians (NRIs) on whether to invest their dollar earnings back home in INR or in the developed world. He explores historical trends, current economic factors like inflation, current account deficit, and FDI flows, to provide insights on currency exchange rates and investment decisions. Khan also discusses investment motives, including speculation, interest rate differences, and need-based factors, and outlines various investment routes available to NRIs in India.

Takeaways

• 😀 NRI Money Clinic aims to help non-resident Indians (NRIs) decide whether to invest in dollars or Indian rupees.
• 💵 The strength and international acceptance of the US dollar make it an attractive currency for investment.
• 🌍 The US economy's significant role in global market capitalization justifies the preference for holding dollars.
• 🏠 NRIs may invest in India due to personal ties, potential for higher returns, and higher interest rates on rupee deposits.
• 📉 Historically, the Indian rupee has depreciated against the dollar, but this is not a constant daily occurrence.
• 🔄 Currency exchange rates are dynamic and can fluctuate, affecting the value of investments in different currencies.
• 📈 The Indian rupee has periods of appreciation against the dollar, contrary to the common perception of constant depreciation.
• 💼 Factors influencing rupee depreciation include inflation differential, current account deficit, and defense procurements.
• 💹 The flow of dollars into and out of India can impact the rupee's value, with recent trends showing increased FDI and remittances favoring the rupee.
• 🏦 Interest rate differentials between FCNR and INR deposits have narrowed, reducing the advantage of one over the other.
• 🏢 NRIs have various investment options in India, including FDs, bonds, mutual funds, PMS, and insurance plans, with some requiring large minimum investments.

Q & A

What is the main dilemma faced by Non-Resident Indians (NRIs) when managing their earnings in dollars?

The main dilemma faced by NRIs is deciding whether to invest their earnings in dollars in the developed world or to invest the money back home in Indian Rupees (INR).

Why do people have an affinity for holding dollars?

People have an affinity for holding dollars due to its strength as an international currency, its acceptance worldwide, and the fact that the US economy constitutes about one-third of the world's market capitalization.

What are the historical trends of the Indian Rupee's value against the dollar?

Historically, the Indian Rupee has depreciated against the dollar over decades. For example, in 1979, 1 US dollar was equivalent to about 12-15 Indian Rupees, whereas today it is around 83 Indian Rupees.

Why might the Indian Rupee appreciate or depreciate against the dollar?

The Indian Rupee can appreciate or depreciate against the dollar due to factors such as inflation differentials between the US and India, current account deficit, defense-related procurements, and the flow of dollars into or out of the country.

What are the three primary reasons for the Indian Rupee's depreciation against the dollar?

The three primary reasons for the Indian Rupee's depreciation against the dollar are inflation differences between the US and India, current account deficit, and defense-related procurements.

How has the Indian government been addressing the issue of current account deficit?

The Indian government has been focusing on renewable energy and energy efficiency to reduce dependence on oil imports, which are a significant factor in the current account deficit. They have also introduced sovereign gold funds to reduce gold imports and the spending of dollars.

What is the impact of FDI on the Indian Rupee's value?

Foreign Direct Investment (FDI) in India is currently very high, which is favorable for the Indian Rupee as it represents a steady inflow of dollars into the country, potentially leading to the appreciation of the currency.

What are the three major reasons people invest in either rupees or dollars?

People invest in either rupees or dollars for speculative reasons, the potential for higher returns through interest or growth in a particular country, and need-based reasons such as having a specific financial commitment in a particular currency.

How has the differential between FCNR interest rates and INR interest rates changed recently?

The differential between FCNR interest rates and INR interest rates has become extremely narrow recently, with both rates being almost similar due to the inflation differential between the US and India narrowing down.

What are the different ways NRIs can invest in India without bringing their money into the country?

NRIs can invest in India without bringing their money into the country through Foreign Portfolio Investment Route (FPI), which may come via Mauritius or Bermuda, or through Gift City in Gujarat. They can also invest in ETFs and mutual funds dedicated to India from their own country.