The Indian rupee's decline has been one of the most important topics in the recent past as it directly affects the Indian economy and the finances of its citizens. The Indian rupee’s value is generally compared against the USD (US dollar) as it is one of the most powerful currencies. When 1 USD is equal to more units of the Indian rupee, it means that the Indian rupee has declined and its value has decreased. In September 2024, the Indian rupee fell to its all-time low of Rs. 83.98 and is expected to breach the Rs. 84 mark. The Indian rupee decline directly affects certain investments made by Indian citizens, making it important to know the effects of the Indian currency decline.

This blog will help you understand the effects of the falling Indian rupee and how you can reduce its negative effects on your investments.

• The Indian rupee decline refers to the depreciation of the Indian rupee against foreign currencies.
• The decline of the Indian rupee increases import costs, fuels inflation, impacts foreign investments, and benefits exporters by making their goods cheaper abroad.
• There are certain strategies investors use to benefit from the Indian rupee decline.

Rupee declining refers to the decline in value of the Indian rupee when compared to other currencies, especially the UDS. The rupee declining means that Indian citizens need to spend more Indian rupees if they want to convert them to foreign currencies. There are numerous reasons for rupee declining:

• Higher inflation: Inflation reduces a currency's purchasing power. When inflation is higher in India compared to other countries, the value of the Indian rupee declines because goods and services become more expensive domestically.
• Trade deficit: India imports more goods than it exports, creating a trade deficit. Companies need foreign currencies (like the US dollar) to pay for imports, increasing demand for those currencies. If exports don’t increase compared to imports, this imbalance causes a depreciation in the value of the rupee.
• Rising cruise oil prices: India is one of the biggest importers of crude oil. When crude oil prices increase, the Indian government has to spend more Indian rupee, leading to a Indian rupee decline.

Here is how the fall in the Indian rupee affects your investments:

Investments in domestic or foreign assets

If you have investments in domestic assets, they may lose their value if the Indian rupee declines. However, if you have investments in foreign assets, they may be unaffected as the Indian rupee fall doesn’t affect your investments using foreign currencies.

Investments in debt instruments

Debt instruments such as debentures and bonds are issued in UDS but purchased in INR. A fall in the Indian currency can make these instruments expensive, as investors have to pay more to convert INR into USD to buy them.

The value of mutual fund investments

If you have invested in equity mutual funds, a fall in INR will not affect them as they are bought and sold in INR. However, debt mutual funds that invest mainly in debt instruments offered in USD but bought in INR will grow slowly as the included instruments will become expensive.

You can take advantage of the rupee declining in the following ways:

• Increasing foreign investments: You can allocate more capital to foreign investments and reduce your domestic investments to reduce the negative effects of the rupee's decline.
• Gold investments: Gold prices generally rise when the rupee weakens since it is priced in US dollars. Investing in physical gold, gold ETFs, or sovereign gold bonds can help you gain as the rupee declines.
• Foreign currency deposits: If you expect the rupee to decline further, you can hold foreign currency in bank accounts like FCNR (Foreign Currency Non-Resident) or RFC (Resident Foreign Currency). These accounts allow you to earn interest in a foreign currency, which increases in value as the rupee depreciates.

The decline in the Indian rupee has been a constant factor due to several factors, including inflation, trade imbalances, foreign investor behaviour, rising oil prices, and global economic trends. As an investor, it becomes important to monitor your investments regularly and adjust them according to current currency trends. You can consider the above-mentioned strategies to use the Indian rupee decline in your favour and ensure you earn profits.

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