Mutual funds make one of the most reliable investment options to people. They attract risk-taking investors and cautious investor both as it offers schemes which fit in a lot of preferences. But one must know that mutual funds schemes do not always yield you the same returns. In fact, the return that you get from a particular mutual fund scheme is influenced by a number of market factors. The stock/money market is in terms with one such factor which has affected investors and that too, not in a good way.

The year did not prove to be any happy for investors trying to adjust with the fall of rupee against the US Dollar since January this year. In fact, the rupee has approximately fallen 11.2% against US Dollar which hurt investments by lowering their NAV, the expected returns, etc.

The question here is- what causes the fall of Rupees against US Dollar, how does it bother investments in India?

We will cover all such topics and lot more in this article which will be your ultimate guide for International mutual funds Investment.

What Caused the fall of Rupees against US Dollar?

Looking back a year ago we will find the value of rupee against US Dollar to be Rs. 65 (approximately). This year, we see that the rupee has ascended down to equal Rs. 74 (approximate value) for a Dollar. But what caused this drastic change? How did Rupee weaken against the US Dollar with such a high margin? The points are given below explain the major causes of the fall of rupee:

  • Rigid Oil Market - The third largest importer of crude oil after the US and China is India. We import about 81% of the crude oil. However, OPEC's decision of limiting their exports caused the stir in the market, strengthening US currency while weakening India’s. Therefore, going by the simple concept of demand and supply, as the US Dollar increases due to the increase in demand and shortage in supply of crude oil, the Indian Rupee is bound to inflate against Dollar.
  • Increased Current Account Deficit (CAD)- Increasing CAD is not a good sign as it signifies that the imports have to be met with more the value of local currency, implying a depreciation of the value of money directly.
  • The bond yields in the US remains significantly high. Investments in bonds in the US continue to pay 3% more than the average and therefore attracting a huge number of investors to invest more than usual as to gain higher. Therefore, the currency of markets like India is weakened by the strengthening of US Dollar.

They are indicating factors such as increasing domestic inflation, rigid trade policies adopted by a lot of countries and lower inflows in foreign funds investments back up the estimate that the rupee may weaken further up to Rs. 80 per Dollar.

How does it affect your Investments?

The weakening of rupee has a huge impact on the overall market and triggers a lot of market changes. For example, the authorities may decide on increasing the rate of interest in order to attract more foreign capital which would mean more inflow of local currency which calls cancel out the volatility, making Rupee stronger against US Dollars. Another effect that poor rupee value will have is that the debt funds may be adversely affected in the long term. Due to the rise in the rate of interest, the Net Asset Value (NAV) and the returns may come down in the long term. Borrowers would have to redo all calculations as the increased interest rates would require them to pay more than they usually do. Home loans and other loans shall come with higher EMIs making them more costly than ever.

Not to mention, imports will be limited and expensive as imported raw materials shall cost more which shall be ultimately passed on to the consumers and foreign trips and foreign education can cost you more. The sky-high fuel prices from the middle of the year are another indicator which definitely the common man has to gulp down. The petrol and diesel prices had reached almost Rs. 90 in metro cities like Mumbai. Rising fuel prices, in turn, increase the cost of transportation which means you will have to pay more for everything from public transports to purchase of groceries.

In this scenario, the smartest investment that once can make is by Investing in best mutual funds plans for the returns in the international market is far above and therefore, investing in a position where the value of Indian currency is stooping as compared to US Dollar definitely comes around as an advantage. The lesser your portfolio depends on the Indian market, the more you shall benefit.

Author's Bio: 

Peter is the is an entrepreneur disguised as a certified financial planner, author and blogger. His mission is help future generations achieve financial freedom by developing strong money habits and unleashing their entrepreneurial spirit.