Investing in foreign funds, on one hand, can be rewarding, while on the other, it can prove to be risky. Earlier the foreign exchange markets were largely dominated by banks and institutional investors. But now it is not their sole domain anymore due to the influx of online brokerages and margin trading accounts. The FCNR or Foreign Currency Non Resident account allows NRIs to invest in India without worrying about currency risks. It is a term deposit account that can be maintained in foreign currency. Foreign currency is the largest and most liquid market in the world and can offer huge returns on smart investments. Investors should however weigh the pros and cons thoroughly before investing in foreign funds.
The benefits of investing in foreign funds are as follows:
• Large market – The foreign exchange market is the largest and most liquid market in the world. The average daily volume of the transactions that take place in this market is in excess of 4 trillion dollars.
• Diversification – You can protect your investment against the risks in your domestic market. Foreign funds help you to invest in a different country and this insulates you intermittent dips and shocks in your domestic market.
• Flexible trading hours – The foreign exchange market operates 24 hours a day and 5 days a week. This provides you with more time than traditional equity, bond or futures market.
• Low costs – You do not have to pay a commission to trade in foreign exchange. All you need to do is ask or bid spreads that tends to be tighter than equities.
NRI or PIO investors could have been apprehensive about investing in India as they thought that they might be exposed to Foreign Exchange Risk. This would have implied that they would have to convert their money into Indian currency while investing and again convert it back into Foreign Currency during withdrawal. However, the Government of India allowed NRIs to invest in foreign currency in FCNR accounts.
The benefits of FCNR are:
• The biggest benefit is that this account is maintained in foreign currency and this eliminates the constantly fluctuating currency conversion rates.
• The maturity terms of these deposits range from 1 to 5 years.
• The rates of interest offered on the deposit are generally higher than that offered by the country of residence of the NRI. The rates of interest are regulated by the RBI and they are the same all over the country.
• In India, the interests earned on these deposits are tax free and fully repatriable.
Thus you can manage your foreign funds by investing smartly in FCNR accounts if you are an NRI. This account will enable you to invest foreign currency and earn interest. The time periods of such investments are flexible and you can even withdraw your deposit before completion of the selected term.
The benefits of investing in foreign funds are as follows:
• Large market – The foreign exchange market is the largest and most liquid market in the world. The average daily volume of the transactions that take place in this market is in excess of 4 trillion dollars.
• Diversification – You can protect your investment against the risks in your domestic market. Foreign funds help you to invest in a different country and this insulates you intermittent dips and shocks in your domestic market.
• Flexible trading hours – The foreign exchange market operates 24 hours a day and 5 days a week. This provides you with more time than traditional equity, bond or futures market.
• Low costs – You do not have to pay a commission to trade in foreign exchange. All you need to do is ask or bid spreads that tends to be tighter than equities.
NRI or PIO investors could have been apprehensive about investing in India as they thought that they might be exposed to Foreign Exchange Risk. This would have implied that they would have to convert their money into Indian currency while investing and again convert it back into Foreign Currency during withdrawal. However, the Government of India allowed NRIs to invest in foreign currency in FCNR accounts.
The benefits of FCNR are:
• The biggest benefit is that this account is maintained in foreign currency and this eliminates the constantly fluctuating currency conversion rates.
• The maturity terms of these deposits range from 1 to 5 years.
• The rates of interest offered on the deposit are generally higher than that offered by the country of residence of the NRI. The rates of interest are regulated by the RBI and they are the same all over the country.
• In India, the interests earned on these deposits are tax free and fully repatriable.
Thus you can manage your foreign funds by investing smartly in FCNR accounts if you are an NRI. This account will enable you to invest foreign currency and earn interest. The time periods of such investments are flexible and you can even withdraw your deposit before completion of the selected term.
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