Investors must account for currency depreciation in their financial plans and use instruments that can cushion the erosion in purchasing power.
The rupee recently crossed the 90 level against the United States dollar, reinforcing a long-term trend of gradual depreciation.
For Indians with future spending goals denominated in foreign currencies -- such as children's overseas education, international travel or medical treatment abroad -- this weakening can have a significant impact.
Investors must account for currency depreciation in their financial plans and use instruments that can cushion the erosion in purchasing power.
Key drivers
A widening trade deficit has been one of the principal factors that has weakened the Indian rupee.
"Record gold imports have contributed in a big way," says Sachin Jain, managing partner, Scripbox.
Merchandise exports -- particularly to the US -- have softened.
"Analysts expect India's current account deficit to rise to 1.4 per cent of GDP in FY26 compared to 0.6 per cent in FY25," says Karan Aggarwal, co-founder and chief investment officer, Elever.
Risk-off sentiment globally has added to the pressure.
Foreign institutional investors (FIIs) have been persistent sellers due to concerns around India's earnings growth and valuations, withdrawing about Rs 1.55 trillion (about $17 billion) in 2025 so far. This has put further strain on the currency.
"Uncertainty around the India-US trade framework and slower capital formation have also weighed on foreign inflows," says Anooshka Soham Bathwal, founder and CEO, Dhanvesttor.
Impact on goals
A weaker rupee pushes up the rupee cost of dollar-linked expenses.
A $1,000 tuition fee costs Rs 90,000 when the exchange rate is Rs 90 and Rs 1 lakh when it reaches Rs 100. This applies across overseas spending categories.
"Even a modest annual depreciation compounds significantly over multiple years, causing large, last-minute budget gaps," says Bathwal.
Planning for overseas goals
Historically, the rupee has depreciated by around 3 to 5 per cent annually against the US dollar, though not in a straight line.
"With inflation and interest-rate differentials vis-à-vis the US narrowing, the depreciation rate should be trimmed slightly," says Chanchal Agarwal, chief investment officer, Equirus Family Office.
Nonetheless, experts suggest using the long-term average of 3 to 5 per cent when planning for dollar-denominated goals.
Investors often underestimate the final corpus required for overseas education by using only domestic inflation in their assumptions.
"The ultimate number could be different if inflation of the overseas country, specifically for the designated expense, plus currency depreciation, is taken into consideration," says Agarwal.
Jain adds that an investor trying to finance global education or any other overseas goal should have a return expectation of a minimum 11 to 12 per cent.
Effective hedging instruments
To protect against depreciation, investors should maintain around 15 to 20 per cent of their equity allocation in overseas assets.
This can be achieved through the feeder funds offered by Indian mutual fund houses that allow access to international active funds, exchange-traded funds (ETFs), and index funds.
Outbound funds in Gujarat International Finance Tec-City (Gift City) provide another route.
Global investment platforms such as Vested and IndMoney offer direct access to foreign funds and ETFs.
"The easiest hedge for the vast majority of investors is gold, as its price fluctuates based on the international price of gold multiplied by the current INR-USD exchange rate," says Jain.
A 10 per cent allocation to gold can help protect portfolios from currency-driven value erosion.
Aggarwal adds that sophisticated investors planning expenses in Japan, the Eurozone, the United Kingdom or the US may also hedge their exposure by going long on futures contracts for these currencies.
Mistakes to avoid
A common error is using only domestic inflation -- typically around 6 to 8 per cent -- when planning for overseas education.
Jain points out that investors frequently ignore global inflation and currency trends, leading to shortfalls close to the goal date.
Bathwal adds that some investors try to time the rupee-dollar movement, which is nearly impossible, while others overreact by shifting disproportionately into dollar assets.
Avoiding global diversification altogether is another mistake, as it leaves portfolios more vulnerable to currency and domestic market shocks.
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Feature Presentation: Ashish Narsale/Rediff
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