Hedge Your Wealth: Protecting Your Portfolio Against Rupee Depreciation 20Dec2025
(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
At the turn of the century, the Indian Rupee was trading at around 45 against the US Dollar. While it held relatively steady through 2010, the subsequent decade saw a steep decline (see the inverse graph above).
The rupee depreciated to nearly 63 by 2015, crossed 75 in 2020, and just this past week, it briefly breached the 91 mark before settling back just below 90 yesterday.
For an Indian saver, this means your global purchasing power has essentially halved in a generation. This is where the global investing becomes your most powerful tool for wealth protection.
2. Case for Global Investing
In recent years, many money managers in India have been advocating global investing for Indian investors, as part of portfolio diversification, because different assets and markets move at different times.
They aver that international diversification protects Indian investors from downside, if any from Indian markets, when they diversify their portfolios globally.
This is a sound argument.
Global investing prevents you from "keeping all your eggs in one basket" (home country bias) by spreading risk across markets that don't always move in the same direction (low correlation assets).
Because international assets often perform well when the Indian market is struggling, this variety helps balance out your losses and keeps your total savings more stable.
It grants access to global innovation leaders and specialised technology sectors that are currently underrepresented or unavailable on Indian stock exchanges.
Additionally, holding dollar-denominated assets provides a currency hedge, protecting your long-term purchasing power against the gradual depreciation of the Rupee.
Before we discuss further, let's talk about LRS.
3. RBI Liberalised Remittance Scheme
The Liberalised Remittance Scheme (LRS) serves as the legal gateway for Indian investors to invest overseas. The LRS acts as the 'financial passport' that allows you to diversify your wealth into international assets with ease.
India's central bank, Reserve Bank of India (RBI) introduced Liberalised Remittance Scheme (LRS) for resident individuals in Feb2004, so that they could remit up to an amount of USD 25,000 in any calendar year for any permitted current or capital account transactions or a combination of both.
Initially, the LRS limit was applicable per calendar year. In 2007, this was shifted to financial year.
The outward remittances limit was enhanced over the years to the current limit of USD 250,000 per financial year. The current limit was set in Jun2015.
For some reason, the current dispensation in New Delhi has been reluctant to increase the LRS limit in the past 10 years.
RBI LRS Limit: Timeline of Changes >
RBI allows outward remittances for a variety of categories / transactions. They are:
1. Deposit
2. Purchase of immovable property
3. Investment in equity/debt
4. Gift
5. Donations
6. Travels
7. Maintenance of close relatives
8. Medical Treatment
9. Studies Abroad
10. Others*
(* Others include items such as subscription to journals, maintenance of investment abroad, student loan repayments and credit card payments)
Of these, the top three categories, namely, deposits, immovable property and investment in equity / debt are considered as capital account transactions because they change your assets abroad (you own them).
The remaining seven categories are viewed as current account transactions as the monies are for consumption or support (they are spent).
The next question that comes to mind is: what are the routes available to invest in foreign assets?
4. How to Invest Globally?
Think of the LRS as your financial passport—it gives you the permission to travel; now you just need to decide which investment vehicle will take you to your global destination.
The Four Primary Routes for Global Investing
A. Direct route: You remit US Dollars from your bank account in India directly to an overseas brokerage account. By using international platforms, you gain personal ownership of global assets, within the overall annual USD 250,000 LRS limit.
With this, you can invest in overseas stocks, ETFs, bonds and real estate.
B. GIFT City route: Though it's a domestic hub, transfers to GIFT City are legally treated as foreign remittances under LRS.
This allows you to open a foreign currency account in India to trade in global stocks with simplified paperwork while staying within your annual USD 250,000 limit.
C. Employee route: If you're an Indian resident receiving employee stock options or ESOPs from a foreign company (employer), you can exercise these ESOPs by sending money abroad.
Both the cost of acquiring these shares and the value of the shares themselves are counted toward your annual LRS quota.
D. Indirect route: You invest in rupees in India through a mutual fund scheme that holds international assets.
Because the mutual fund house manages the foreign exchange at an institutional level, these investments are outside the ambit of the RBI's LRS and do not exhaust your personal USD 250,000 limit.
5. How Indian Savers are Navigating Global Markets in 2025
A. New Wave of Indian Investors:
Global investing is no longer just for the ultra-wealthy and high net individuals (HNIs). In 2025, nearly half of all new international investors come from Tier 2 and Tier 3 cities like Kochi and Indore. Participation is no longer confined to Bombay or Delhi.
These savers are starting small—often with less than USD 500—using user-friendly apps (mobile applications) and digital-first platforms to build wealth through fractional shares.
Indian savers are no longer just "testing the waters"; they are strategically building global portfolios.
B. Strategic Use of the "Indirect Route"
Given
the 20 per cent TCS (Tax Collected at Source) on remittances above Rs 10 Lakh
transactions, many savvy investors are adopting a hybrid approach.
They
use the Direct Route for specific stock picks where they want personal
ownership, while utilising the Indirect Route (Indian mutual funds
investing in foreign stocks) for their broader international exposure.
This
allows them to stay globally diversified without exhausting their
personal LRS limits or dealing with immediate tax outflows.
Examples of Indirect Route:
As of 30Nov2025, the data from Rupee Vest show the assets under management (AUM) of exchange traded funds (ETFs) that focus on US indices.
Nasdaq
100: Four Indian mutual fund schemes tracking this tech-heavy index (including the Magnificent 7 and other technology stocks) now
manage staggering assets of nearly Rs 22,000 crore.
NYSE FANG+: Two Indian mutual fund schemes schemes tracking this index (covering giants like Google, Apple, Broadcom, Crowdstrik and Nvidia) have amassed assets worth close to Rs 6,000 crore.
These two US passive indices are the biggest and are exposed to technology- and communications-heavy sectors in the US.
The others funds in India based on foreign indices have small asset size.
As mentioned above, this indirect route does not come under LRS.
C. A Focus on Stability and Innovation:
According to media reports, many investors use low-cost passive funds, including ETFs (like those based on S&P 500 or Nasdaq 100) as their foundation, then "add on" global leaders in artificial intelligence (AI), cybersecurity and semiconductors—industries where India’s domestic options are practically nil.
RBI data on outward remittances under LRS for capital account transactions >
| The following three categories of LRS can be considered as | ||||
| overseas investments (capital account) by Indians | ||||
| Purpose |
1. Deposit | 2. Purchase of immovable property | 3. Investment in equity/debt | Total of the three |
| all data in USD billion | ||||
| 2025-26* | 0.3 | 0.2 | 1.1 | 1.7 |
| 2024-25 | 0.7 | 0.3 | 1.7 | 2.7 |
| 2023-24 | 0.9 | 0.2 | 1.5 | 2.7 |
| 2022-23 | 1.0 | 0.2 | 1.3 | 2.5 |
| 2021-22 | 0.8 | 0.1 | 0.7 | 1.7 |
| 2020-21 | 0.7 | 0.1 | 0.5 | 1.2 |
| * data from Apr-Sep2025 | data: RBI, author | |||
| 20Dec2025 www.ramakrishnavadlamudi.blogspot.com | ||||
If you observe closely, the data reveal a startling paradox. Between financial years 2022-23 and 2024-25, outward remittances for investments (deposits, property and equity / debt) remained stagnant, moving only from USD 2.5 billion to USD 2.7 billion.
In comparison, the total outward remittances for these years are USD 27.1 bn, USD 31.7 bn and USD 29.6 bn respectively -- showing moderate growth.
This means that while we are sending record amounts of money abroad, less than 10 per cent is actually being used to build global wealth. We are happy to spend in dollars, but we are surprisingly hesitant to own assets in dollars.
Let's look at why this 'spending versus saving' gap is a massive missed opportunity for the Indian saver.
6. India is A Nation of Travelers, Not Investors
Where is the money really going?
Data showing outward remittances under LRS for various categories >
Key insights from the above table:
> Total LRS remittances surged from USD 18.8 bn (2019-20) to USD 29.6 bn (2024-25)
> Between 2021 and now, almost 90 per cent of LRS outbound money is from four categories, namely, travel, relatives maintenance, gifts and studies abroad
> In the past six years, the share of travel soared from 25 per cent to almost 60 per cent now; indicating preference of resident Indians to travel abroad (Revenge Travel exploded post-Pandemic)
> Indians used to spend USD 5 billion on studies abroad (foreign education of Indian children) five years ago and it has plummeted to USD 2.9 billion during last financial year -- clearly showing Indians find foreign studies less attractive primarily due to anti-immigration policies of the West, including the US
> One caveat: Numbers alone won't tell you the full story, because the system records flows, not ownership.
Overall:
LRS is mostly driven by consumption (travel and education).
Investment abroad is relatively minuscule.
There is no explosive growth in overseas investments through the LRS route, despite global investing hype.
This is despite:
> Easy access to US stock platforms
> Pitch by money managers in India to invest abroad
> Social media narratives around “global diversification”
Actual data show:
> Overseas investment outflows are flat to mildly rising
> Thee is no structural surge
This reflects: Regulatory friction (Indian regulations are capricious and cavalier), tax complexity and currency risk awareness.
This reinforces the original thesis that: We Indians have become a nation of global "consumers" rather than global "investors."
MF limit USD 7 billion
connect LRS outflows to forex reserves
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(the blog is not yet completed, please bear with me -- it may take another one or two hours to finetune)
References:
RBI Master Direction - Liberalised Remittance Scheme (updated 06Sep2024)
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