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.
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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 three categories (No 1 to 3), 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 (No 4 to 10) 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 and bonds.
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.
I have refrained from commenting on tax incidence of these various routes for global investing, as I've no expertise on tax matters. However, investors should consult their tax / financial advisors before committing any investments and must focus on after-tax returns on their investments.
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 given below accessed 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.
There are other funds in India based on foreign indices, but they 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.
Till now, we discussed about the case for global investing, the contours of LRS, the primary routes of global investing and how investors are using them practically.
So, what do the actual numbers reveal about the global investing routes?
RBI data on outward remittances under LRS for capital account transactions and share of capital account transactions as a percentage of total LRS outward remittances > data from 2008-09 to 2025-26 >
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 (see chart below for data).
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 Indians 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 Travellers, Not Investors
Where is the money really going?
Data showing outward remittances under LRS for various categories > data from 2008-09 to 2025-26 >
Key insights from the above table:
> Total LRS remittances surged from USD 18.8 bn (2019-20) to USD 29.6 bn (2024-25)
> During FY 2025-26 (Apr-Sep2025), the total outflow is USD 14.8 bn
> Between 2021 and now, almost 90 per cent of LRS outbound money is from four categories, namely, travel, relatives maintenance, gifts and studies abroad (all consumption)
> 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."
7. Some leakages not captured by LRS data
Regulatory scrutiny has recently intensified as the RBI and tax authorities have flagged significant leakages where "Current Account" categories like travel and gifts are being used as proxies for "Capital Account" investments.
Some high networth individuals (HNIs) have been found using the gift route to remit funds that are subsequently used to purchase foreign securities, effectively bypassing the strict repatriation rules.
Authorities have also detected violations where unspent foreign exchange remitted for travel or gifts is retained in overseas accounts beyond the permitted period and later deployed for asset purchases instead of being brought back to India.
Owing to these practices, headline current account outflows may overstate consumption and partially mask latent demand for overseas asset accumulation.
The bulk of travel and gift remittances may be bona fide, but this shift from pure consumption to hidden wealth-building creates a data mismatch, where the USD 20 billion travel and gift bill likely hides a much larger appetite for global assets.
By misclassifying these transfers, savers risk severe penalties as the government moves to close these loopholes with tighter bank reporting and the 20% TCS "sting."
This data "leakage" helps explain why the official investment numbers have not shown much growth at USD 2.7 billion in 2024-25 (growth of USD 1.5 billion in five years) while travel and gift spending have grown to nearly USD 20 billion in 2024-25 (a growth of nearly USD 16 billion in the past five years).
Essentially, while the official data suggests we are only saving 10 per cent of total outward remittances, the reality is that many Indians are likely using the "gift" and "travel" categories as a back door to fund global assets.
8. Why no increase in limits for more than a decade?
If India' foreign exchange reserves are strong and LRS is a “luxury of strength”, why has further liberalisation of LRS limits stalled for a decade?
RBI has been deliberately ignoring industry's demands to increase the USD 7 billion on overseas investments by mutual funds in India.
The mutual fund industry reached the limit in 2022 and SEBI stopped MFs from making fresh investments abroad.
Within the industry limit of USD 7 billion, each individual mutual fund house cannot invest more than USD 1 billion.
It may be recalled the USD 7 billion limit was set in Apr2008 and has not been increased even as India has grown from strength to strength on several fronts (despite several shortcomings in other areas persisting still).
In addition to the above RBI limit of USD 7 billion, mutual funds in India can invest cumulatively up to USD 1 billion in overseas exchange traded funds (ETFs), as permitted by India's capital market regulator, SEBI or Securities and Exchange Board of India.
In Mar2024, SEBI directed mutual fund houses to stop accepting fresh subscriptions in schemes that invest in overseas ETFs, effective 01Apr2024.
To recap: Govt of India and Indian regulators have effectively created four roadblocks for Indian investors:
1. No change in LRS limit for individuals (stagnant at USD 250,000 since 2015)
2. No increase in MF industry limit of USD 7 billion for overseas securities (the limit remains stagnant since 2008; RBI refuses to raise the limit though the industry reached this threshold in 2022)
3. No increase in USD 1 billion ceiling of overseas ETFs; SEBI barred mutual funds from new investments
4. The 20% TCS rule: If a resident individual sends money abroad, a 20 per cent tax will be collected by the government at source (TCS) if the amount crosses Rs 10 lakh (effective Oct2020, 5% TCS was introduced, which was later raised to 20% in Oct2023).
What could be reasons behind creating the roadblocks in the first place? In the absence of any transparency in policy making by the authorities, we can only speculate:
The authorities don't want any capital account convertibility or full current account convertibility?
The authorities don't want to further encourage Indians to invest abroad and want Indian savings to stay within India?
They are cagey about depletion of forex reserves via LRS and overseas securities / ETFs?
Maybe, they are encouraging Indians to invest through GIFT City, by creating these roadblocks?
They are worried about capital outflows from India, though our forex reserves are roughly USD 690 billion?
There are no definitive answers here.
I think the discomfort of authorities (Govt of India, RBI and SEBI) in raising these limits is more to do with a combination of macroeconomics, political economy and crisis memory, not just forex reserves arithmetic.
India's external debt indicators are more than comfortable at this point. But the actions and inaction of the authorities do not reflect the comfortable situation on India's external sector front.
Roadmap
India’s position is contradictory:
RBI wants foreigners to hold rupees,
but doesn’t fully trust residents to move capital freely.
They want to internationalise the rupee, but how do authorities build trust and confidence in the Indian trait of capriciousness in policy matters?
That asymmetry is visible in:
> Capped LRS limit for a decade
> Frozen MF overseas limits for more than 17 years
> Ad hoc tightening (TCS, reporting, approvals)
> No published capital account convertibility roadmap
From a global investor’s perspective: “If residents aren’t trusted with their own currency, why should I hold it internationally?
9. Action Button: How to Move from Global Consumer to Global Owner
Even with current hurdles and roadblocks, global investing in 2026 remains one of the most effective ways to protect long-term purchasing power for Indian investors, but moving from a global consumer to a global owner requires deliberate strategy.
Holding assets in dollar or euro acts as a vital currency hedge, ensuring that your savings grow in value alongside the rising costs of international travel and foreign education.
Since these expenses are priced dollars or euros, investing globally prevents your purchasing power from being eroded by the rupee's depreciation.
By owning dollar or euro assets, you effectively match your future liabilities with your current investments, turning a currency risk into a wealth protection advantage.
Investors may stay within the Rs 10 lakh annual remittance sweet spot per individual to avoid the 20 per cent TCS drag, use family-level planning where appropriate and rely on GIFT City and IFSC routes when mutual fund overseas caps block access.
IFSC or International Financial Services Centre (IFSC) is located in GIFT City. IFSC is a conduit to avoid (legally) burdensome capital controls by Govt of India.
Rather than timing currencies, the focus should be on passive, USD-denominated assets that provide both global equity exposure and a natural hedge against rupee depreciation.
From a policy perspective, raising the long-frozen mutual fund overseas limits would immediately democratise global diversification for ordinary savers.
Over the medium term, inflation-indexing the LRS limit and simplifying TCS refunds are essential to align India’s outward investment framework with its ambition to create globally invested households.
Finally, you should consult your tax and financial advisors before making any investments, because global investing is a specialised area and there are a lot of grey areas in India's tax and regulation maze.
(the blog is not yet completed, please bear with me -- it may take another one or two hours to finetune)
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P.S. dated 23Dec2025: This is added on 23Dec2-25 as additional information:
PPFAS To Enable Easy Access To US Stocks Via Two New GIFT City Funds - international funds - foreign funds
GIFT City hotpotch
Ultra-Rich Indians Find a New Route to Invest Their Cash Overseas - GIFT City -
In Jul2024, RBI allows foreign currency accounts (dollar accounts) in GIFT City for overseas investments and other remittances - STCG / LTCG - TDS / TCS
20% TCS Rule - Tweet thread from May2013 (viewpoints from various experts) - 20% TCS is so stupid! - tax terrorism?
Tweet 15Aug2025 - Parizad Sirwalla on 20% TCS on remittances
Tweet thread 22Jun2025 - international funds in India (equity funds in India) that invest in foreign stocks - Value Research compare funds - international funds - foreign funds - overseas funds
Tweet thread 14Sep2025 - international funds - foreign funds - overseas funds
FinTech apps US-based:
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References:
Ananth Narayan, former SEBI whole-time member, speaks (video) to Latha Venkatesh of CNBC TV18 on the need for India to increased USD 7 billion limit 11Dec2025
RBI Master Direction - Liberalised Remittance Scheme (updated 06Sep2024)
RBI Notification dt 03Apr2008 - Overseas Investments by Mutual Funds increased from USD 5 billion to USD 7 billion (the notification was withdrawn wef 22Aug2022)
RBI Master Direction dt 22Aug2022 - Overseas Investment limits and other topics covered here
Sensex versus Gold Price 29May2024
GIFT City - IFSC GIFT - press release dt 02Aug2025 - committee report on Global Commodity Trading Hub?
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