By Mr. Viraj Nanda, CEO, Globalise
Studying abroad, specially in the US, is no longer just an aspiration but an achievable purpose for numerous Indians. The Liberalized Remittance Scheme (LRS) has also made it less complicated to transfer significant amounts abroad to spend for education. Accumulating funds in India and ultimately sending them abroad to spend for tuition and living costs has been the common route for funding a child’s education. However, accumulating this corpus in dollar-denominated assets gives a number of positive aspects:
1. It added benefits from exposure to a significant, created, and robust marketplace.
2. Investing in the US gives diversification by spreading across assets that are significantly less correlated with the domestic marketplace.
3. Holding funds in dollars eliminates the exchange price danger and any depreciation of the rupee against the dollar.
Let us take the instance of Family A preparing for their child’s education abroad soon after eight years. This strategy entails saving and investing to attain the target quantity and preparing the transfer of the funds ultimately. Spreading aspect or all the savings towards this objective into the US marketplace would provide diversification added benefits and mitigate exchange price danger.
The US marketplace historically has been significantly less volatile on typical compared to emerging markets such as India. The returns have also been superior in the last decade. As we know, the final quantity a particular person would be capable to send abroad is dependent on the prevailing exchange prices at the time of fund transfer. So, exchange price fluctuations can drastically influence a corpus accumulated more than a extended period when it is time to transfer the funds.
On the other hand, a corpus accumulated in the US has no exposure to this exchange price danger because funds are becoming accumulated in dollars for dollar-based costs. The added benefits accrue not just for extended-term investment ambitions. It is equally helpful to invest in the US for brief-term targets as properly.
Key things to think about when preparing to finance your child’s larger education abroad
Let us take a further instance, in this case, a substantially shorter horizon. Mr. B has a kid who has secured admission to a US university and have to fund the costs for the next 3 years. In this case, assuming a corpus has currently been accumulated in India, the quantity is exposed to each the brief-term interest prices and brief-term marketplace danger in the domestic marketplace. It carries the exchange price danger as properly.
In contrast, a corpus in the US that is invested mostly in secure securities keeps the capital secure and avoids the danger from brief-term exchange price fluctuation.
Thus, we see that an investor in the US marketplace can leverage the investments to fund various endeavours, larger education becoming one of them.