investing for higher interest

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pankaj shah
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investing for higher interest

Post by pankaj shah » Mon Aug 19, 2013 12:17 am

I want some help with the following ....

Should I send dollars to india at the high exchange rates available these days to be invested in indian rupees in bank / company fixed deposit fetching 10 to 12% pa

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Re: investing for higher interest

Post by tyler_cracker » Mon Aug 19, 2013 11:56 am

i have no expertise here but:

first off, this seems like a math problem. have you done the math? what does it say?

second, when and in what country do you plan to draw down these funds? if they are for a house in the US in 5 years, i'd keep it in dollars. if it's for retirement in India in 30 years, i'd be more inclined to keep it in rupees (or in a diversified portfolio to hedge currency risk).

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Re: investing for higher interest

Post by ogd » Mon Aug 19, 2013 12:53 pm

There is significant currency risk and credit risk with these, so buyer beware. You should look the history of exchange rates and bank failures / government guarantees at the very least.

That said, the risks don't automatically make it a bad investment, you are being compensated quite handsomely. And currency risk can be diminished if you have a reasonable use for the money in India in case the rupee crashes (e.g. buying property, paying for an extended vacation, helping relatives in need, etc).

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Re: investing for higher interest

Post by slbnoob » Mon Aug 19, 2013 1:26 pm

The high exchange rate is good for you if you need to transfer the money anyway for whatever reason. But it is not an obvious strategy if you intend to bring it back to the US in the future. For example, the inflation in India is comparable to the interest rates you just mentioned. No gain there. When you do want that money back in the US, no one knows what the exchange rate will be, may be favorable may be not. Therefore, not a good investment idea at the moment.

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Re: investing for higher interest

Post by kd2008 » Mon Aug 19, 2013 3:39 pm


Do not convert USD to INR. Those 10% NRE interest rates are deceptive. You will owe US taxes on that interest (NO taxes in India) after inflation and currency risk, that rate is a total wash or even a bad investment.

It would be more sound to invest in FCNR (B) Fixed deposits. There is no currency risk. They are invested in USD and withdrawn in USD. You will owe US tax. No taxes in India. Remember to include the interest in your US tax return. You will not receive a 1099-INT like you would with a US based bank. Remember to file FBAR ( if your assets are over $10,000 outside the US at any moment in the year.

For example, HDFC Bank is offering 5 Yrs Fixed Deposit at 4.56% for US Dollars. This rate is fixed by RBI and hence, nearly all of the banks offer the same rate.

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Re: investing for higher interest

Post by InvestoGuy » Tue Oct 29, 2013 5:12 pm

Hi kd2008,
Have you ever tried or had to remit the money back to US in USD after the FCNR matured or even prematurely? How was that experience?

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Re: investing for higher interest

Post by John3754 » Tue Oct 29, 2013 9:33 pm

What's the inflation rate in India?

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Re: investing for higher interest

Post by less » Wed Oct 30, 2013 8:58 am

You need to decide on your expectations of future FX rates. Look at ... lin&m=0&x=

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Re: investing for higher interest

Post by nisiprius » Thu Oct 31, 2013 8:53 am

The big question you need to answer first is this: What financial conditions in India explain why people so reluctant to put their money in the bank that the bank has to pay 10%-12% to get them to do it, when banks in other countries can get all the deposits they can handle just by paying a few percent?

There must be quite a lot of risk there. I don't know what that risk is, exactly, but you need to.

P.S. As an experiment, I tried typing "rupee crisis" into Google. It turns out that there is a rupee crisis. There are quite a lot of articles about it, most recent, with some saying it's over, some saying it's not really that bad, some saying it's going to get worse, etc. etc. Of course, to be fair, if I type in "dollar crisis" I get lots of hits, too.
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Re: investing for higher interest

Post by Imdeng » Thu Oct 31, 2013 9:32 am

I explored the option some time back and decided against it. As I recall, following were the reasons:

1. The exchange rate risk seems too high and unpredictable. Just recently USD/INR touched a high 67 I believe. Considering the high inflation in India, and the low inflation in US, USD will get stronger against INR. For the bond side of my investments, this is a risk I don't need to take.
2. It is not tax advantaged.
3. The process is not very friendly with several levels of documentations needed. Makes life difficult compared to holding bonds/CDs in US.
4. Complication rarely pays off. I have learnt this the hard way after spending a lot of time and money into complicated opportunities (trend trading for example :-().

If someone has tried it - please let us know if holding India based CDs is a viable idea.

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