Hi Sir,
Actually I fell one of the benefit mentioned by you and most of investor for investing in foreigh countries is RUPEE DEPRICIATION. I feel this is actually not a benefit.
First I would like to put some calculations in front of you and there after I would like to explain why is RUPEE DEPRICIATION not a real benefit.
From 2000 till 2021 RUPEE has depreciated by 130% from 35 to 80 today. Now this is in nominal terms we have to understand in real terms as well. Total inflation in India from 2000 till 2021 has been close to 135% and total inflation in USA has been close to 30%. Now my number might not be perfectly wright but please do understand the context. In REAL TEARMS the depreciation is close to 37% only. Which comes out to be a CAGR of 1.6%.
To explain above calculation let me take an example. Suppose there is 100 INR and 10 USD in this world with an exchange rate of 10 INR per USD. Suppose india has an inflation of 100% and USA has an inflation of 10%. Inflation means that the purchasing power of your money reduces because of more money available in economy. Let us assume money supply and inflation are the same in this case. Which means now there is 200 INR and 11 USD available. Suppose the exchange rate goes to 15 INR for 1 USD which looks like 50% depreciation but if you see earlier I could have purchased only 10 USD for 100 INR but now I can purchase 11 USS for 165 INR and still have 35 INR left with me. This happened because the money supply increase was relatively grater than RUPEE depreciation. At the end of the day it is not about the money but it is about PP(purchasing power).
Forex is very dynamic but this is one of the reason for depreciation. Just think this way if suppose SRILANKA has 10yrs government bond yield of 30% then I should invest in SRILANKA get 30% and convert my money back. But in reality SRILANKA currency will depreciate by 30% against my currency if my country inflation is 0% and in reality I don’t make any money.
Secondly INDIA is a developing country so investing in developed economy is not at all a good opportunity imo. Your wealth will grow at a faster rate in INDIA than in developed economy.
Third companies in USA follow GAAP unlike IFRS in india. We follow accounting standards but it is aligned with IFRS. So understanding their rules and then analyzing adds a lot of work.
Diversifying your portfolio by investing in different countries is beneficial for HEDGE funds or big institutions but not at all at individual level.
At last I don’t know exactly how the investing works in overseas but we might loose a lot on conversion as well. just to give a real example 2 to 3 days back I received an INWARD remittance @79.10 but in the same day the OUTWARD remittance was processes at @80.35. Lot of money is also lost in long term during conversion.
@Tar SIR you have been investing in USA. I would like to understand what makes you invest in USA and not invest that same amount in indai. I would be extremely happy if you can explain me and enhance my understanding
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