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NRIs - Have Your Cake and Eat it Too ! |
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NRIs with dollar investments have a unique opportunity to cash in the current market scenario. NRIs who have a horizon of 18-24 months must consider investment in Indian fixed income instruments. Gilts (government securities) and Gilt funds look particularly interesting. The expected gains on investments are on two counts; one, benefits from exchange rate which I believe will return to Rs. 40 levels for a US dollar in less than two years (maybe sooner) and returns of approx 10% odd on the fixed income side. So lets say an NRI transfers USD 1000 today and gets invested in gilt funds (for those who do not wish to take the risk associated with gilts can actually look at bond funds), the calculations may look something like this:
Current Exchange Rate: 1 USD = Rs. 48
Investment Amount = USD 1000
Investment Amount = Rs 48,000
Returns on Gilt Funds = 15% p.a
After 18 Months:
Total Amount = 58,800
Assumed Exchange Rate 1 USD = Rs. 42
Amount in USD = 1400
Absolute Return = 40%
Net Annualized Return = 26.66%
Like any other investment, there are risks. In this strategy. One is that the exchange rates scenario may not actually move in favour, the other is that gilts (or even other fixed income securities) are sensitive to interest rate movements. Both these risks today seem to be minimal. I do not foresee the dollar strengthening significantly more than what it already has and nor do I foresee the interest rates being increased. On the interst rate scenario, it is unlikely, but possible that the government may increase rates in response to lets say fresh fears on inflation. In such a situation, gilts may suffer a temporary setback but but sooner than later make up for this. Gilt funds have another thing going for them. In a scenario where credit quality of institutions and corporates is increasingly being doubted gilts (or government securities) offer the highest level of security. |
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Re: NRIs - Have Your Cake and Eat it Too ! |
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Dhana
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| 23 October 2008, 18:13:26 |
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Hi,
It is indeed, a good write up. Could you please throw some light as to how one can really go ahead with your suggestion.
Thanks
Regards,
Dhana |
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Re: NRIs - Have Your Cake and Eat it Too ! |
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Dhana,
NRIs first should get their dollars into their rupee bank account in India ad simply get invested in some of the good gilt funds. I particularly like Fidelity Flexi gilt, Tata, Templeton and now DWS. When the rate cycle reverses, you will start seeing gains on the funds. Rupee may take a while to go back to 42 levels but I am reasonably sure it would. NRIs can thus expect equity like returns from fixed income securities.
Rgds, |
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