Invest in US funds, gold to fulfil child education goal amid rupee plunge

Travellers may switch to destinations against whose currencies the rupee has gained

The rupee’s 9.2 per cent depreciation year-to-date against the US dollar will translate into a heftier bill for those planning to send a child to America for higher education, or those planning to vacation in that country.

Don’t give up easily on US dream

If your child plans to pursue courses like computer science, artificial intelligence, machine learning, data science, blockchain, etc, US colleges offer the best courses.

While the rupee’s depreciation has made studying there more expensive, this will work in the child’s favour once she completes her course. The US allows international students pursuing STEM courses the benefit of optional practical training for three years.

“That is when the rupee’s depreciation will begin to work in the student’s favour,” says Ashish Fernando, founder and chief executive officer (CEO), iSchoolConnect.

The decision on whether to send your child to the US amid rising costs should depend on two factors. “If you have the money and your child is academically strong, send her to the US,” says Fernando. She will in all likelihood recoup the money spent by working during the OPT. Those who intend to fund the cost via a bank loan, and whose child is average at studies, should think twice.

If you opt for another country, consider the college and course’s reputation.

Opt for pocket-friendly destinations

Travellers will be hit not just by the rupee’s weakening but also by inflation, a worldwide phenomenon today.

Travellers can opt for countries against whose currencies the rupee has strengthened, or select a more affordable destination. “We are witnessing a definitive uptick in demand for closer to home and easy-visa destinations like Thailand, Indonesia, UAE and Mauritius,” says Daniel D’Souza, president & country head-holidays, SOTC Travel.    

Travellers can also opt for domestic destinations. “Demand is at an all-time high for locations like Kashmir, Himachal Pradesh, Leh-Ladakh, Kerala, Goa, Andaman and the North East,” says Rajeev Kale, president & country head, holidays, MICE, Visa, Thomas Cook (India).

Cutting down on the number of days (of trip), living in more affordable accommodation, and spending less on shopping and dining are other options.

Invest in US-focused funds

If your child is already studying abroad or will fly soon, transfer money overseas. “Put money in the child’s US bank account so that further depreciation doesn’t impact you,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisers.

Parents whose child will head abroad after five years or more should invest in US-focused funds. “While they carry equity-market risk, they offer protection against currency depreciation,” says Dhawan.

The rupee’s movements against the dollar tend to be lumpy. Over the long term, it tends to depreciate by 3-5 per cent annually. “Maintain a strategic allocation of 15-20 per cent to US-focused funds in your equity portfolio. Don’t reduce exposure when the rupee is stable,” says Dhawan. These funds’ recent underperformance should also not deter you.

Currently, many US-focused funds are not accepting money. “Investors can also take the liberalised remittance scheme (LRS) route. They will get access to a wider range of instruments, such as foreign stocks, mutual funds, exchange traded funds, and real estate investment trusts via this route,” says Arnav Pandya, founder, Moneyeduschool. LRs route, however, is better suited for high-net-worth individuals, given the higher costs and tax compliance involved.

A 5-10 per cent exposure to gold can also hedge portfolios against currency depreciation.  

Watch exchange rate while remitting money

Watch out for hidden charges, such as the exchange rate offered. “The exchange rate used in conversion is often not the favourable mid-market rate, as seen on Google or Reuters. Instead, a markup or margin is often added to the rate,” says Rashmi Satpute, country manager, Wise India. She suggests choosing a service provider that offers the mid-market exchange rate, or a rate close to it.

Travellers, she says, should avoid exchanging money at the airport. Frequent travellers should avoid using debit and credit cards that levy a foreign transaction fee (usually around 3 per cent). When using an ATM abroad, choose the local currency option and not the rupee.