Currency hedging for NASDAQ investments: Should Indians hedge?
Indian investors poured record amounts into NASDAQ-tracking funds through 2024 and 2025. Every one of them faced a question that rarely gets a straight answer: Should you hedge your currency exposure?
The short answer surprises most people. For long-term investors, the rupee's steady decline against the dollar has quietly added 3–4% to annual returns. Hedging that away costs roughly the same amount. You pay to remove a tailwind.
However, the full picture warrants greater nuance. Let's break down exactly how currency hedging works, what it costs, and when it might actually make sense for Indian NASDAQ investors.
What is currency hedging, and how does it work?
Currency hedging protects international investments from exchange rate swings. When you invest ₹10 lakh in NASDAQ stocks, you carry two separate exposures. First, the performance of those US equities. Second, the movement of the USD-INR exchange rate. Hedging removes the second factor.
Fund managers typically use forward contracts to hedge. These are agreements to exchange currencies at fixed rates on future dates. A fully hedged fund rolls one-month forwards continuously, locking in exchange rates and neutralising currency movement in either direction.
Other instruments include currency futures traded on the NSE and BSE, as well as options strategies. However, none of these come free. The cost primarily depends on the interest rate spread between India and the United States.
If you're new to the index itself, our NASDAQ 100 guide for Indian investors covers everything you need to know before diving into currency considerations.
Here is the critical detail for Indian investors. Not every central NASDAQ fund available in India is currency-hedged. Motilal Oswal NASDAQ 100 ETF, ICICI Prudential NASDAQ 100 Index Fund, Kotak NASDAQ 100 FoF, and Navi NASDAQ 100 FoF all pass currency movements directly to investors. Fund managers chose this design deliberately. They recognise that rupee depreciation has historically helped Indian investors rather than hurt them.
Hedged vs unhedged returns: what the data shows
Historical data paints a clear picture. Unhedged NASDAQ investments have consistently delivered superior returns for Indian investors compared with hedged alternatives.
The most substantial evidence comes from Motilal Oswal's NASDAQ 100 ETF. Between March 2011 and December 2019, the NASDAQ 100 grew roughly 4x in dollar terms. During that same stretch, the ETF delivered 6x growth in rupee terms. That extra 50% came almost entirely from the rupee's weakening against the dollar, which moved from ₹45 to ₹71.
The pattern holds across every time period examined. Over the past decade, rupee depreciation has contributed roughly 3.4% annually to NASDAQ returns for Indian investors. Over 15 years, that figure rises to 4.3% per year. This consistent currency tailwind has added approximately one-fifth of total gains over extended holding periods.
A simple example makes the maths tangible. Suppose NASDAQ returns 15% in USD during a year when the rupee depreciates 4%. Your total return in INR terms becomes approximately 19.6%. Even if NASDAQ delivered zero returns, the 15.4% rupee depreciation between January 2022 and January 2025 alone would have generated nearly 5% annual gains purely from currency movement.
Motilal Oswal NASDAQ 100 FoF's numbers confirm this. The fund has delivered 25.2% CAGR since its November 2018 inception. These returns bake in both market performance and currency gains. A hedged version would have stripped away a significant portion of that return.
Cost of currency hedging: why the numbers don't add up
Currency hedging carries a real price tag. For INR-USD specifically, that cost is high enough to erode returns over time materially.
The primary driver is the interest rate differential between India and the US. As of late 2025, RBI's repo rate is 5.25%, while the US Federal Funds rate ranges from 3.5% to 3.75%. This creates a differential of roughly 1.5–1.75%. Through covered interest rate parity, this gap flows directly into forward premium pricing.
Current one-month forward contracts cost approximately 2.65% annually. Three-month forwards run around 3.09%. The historical average since 1997 stands at 4.38%. Long-term swaps over ten years cost even more, at 5.72% annually.
These numbers deserve context. Over a 10-year horizon, a 3% annual hedging cost compounds into a 34% reduction in total returns. Options-based hedging adds further expense, typically around 1% above forward rates.
Today's hedging costs are below historical averages as the interest rate spread between India and the US has narrowed. However, they still represent a meaningful drag. You essentially pay 2.5–3% annually to remove a currency exposure that has historically added 3–4% annually. The maths speaks for itself.
Natural hedge: how rupee depreciation works in your favour
The concept of a "natural hedge" describes how rupee depreciation automatically amplifies returns for Indian investors holding dollar assets. This isn't hedging in the traditional sense. It means embracing currency exposure because the structural trend works in your favour.
Three engines drive returns for unhedged Indian NASDAQ investors. Market performance of underlying US equities comes first. Rupee depreciation, which converts dollars into more rupees, adds a second layer. The compounding effect between these two factors creates the third.
The rupee has weakened from ₹44.27 per dollar in FY2005-06 to approximately ₹90.50 in February 2025. That represents a 104% decline in purchasing power against the dollar over two decades. Persistent inflation differentials between India (averaging 5–6%) and the US (averaging 2–3%) drive this structural trend. India's trade deficit adds further pressure.
During market crashes, this natural hedge proves especially valuable. In 2008, while the NASDAQ fell 41.89%, the rupee weakened 14.1% against the dollar, which cushioned Indian investors' losses to around 33%. During the 2022 bear market, the NASDAQ dropped 32.97%, but rupee depreciation of 10–12% limited INR losses to approximately 24%. Risk-off environments typically strengthen the dollar against emerging-market currencies, providing automatic downside protection when investors need it most.
The rupee hit a record low of ₹92 per dollar on 28 January 2025 amid US tariff concerns. RBI has actively intervened, net-selling approximately $20.1 billion in the spot market between January and September 2025. Foreign exchange reserves stood at $687–696 billion in December 2025. Despite these interventions, the long-term depreciation trend persists.
When to consider hedging your NASDAQ investments
Despite the strong case against hedging, certain situations warrant considering currency protection.
Short-term investments under two years present the strongest case for hedging. Currency movements can dominate returns over brief periods. The rupee occasionally strengthens. It appreciated 3.9% in 2010-11 and 1.7% in 2020-21. For money needed within 12–24 months, this unpredictability may justify hedging costs.
Investors with fixed withdrawal dates also benefit from tactical hedging. If you need funds for education expenses or a property purchase on a specific date, locking exchange rates eliminates last-minute uncertainty as that date approaches.
Risk-averse investors nearing retirement may accept lower returns in exchange for reduced volatility. However, domestic fixed-income investments may serve this goal better than hedging international equity exposure.
The general framework follows a simple pattern. For investments under one year, consider hedging seriously. Between one and three years, individual circumstances matter. Beyond three years, structural depreciation trends strongly favour staying unhedged. Beyond five years, hedging almost certainly destroys value.
Hedged fund options available in India
A practical reality shapes this entire discussion. No currency-hedged NASDAQ- or US-equity mutual fund is available to Indian retail investors. Every available fund carries unhedged USD exposure by design.
The funds currently accepting fresh investments include Navi NASDAQ 100 FoF with the lowest expense ratio at 0.16%, and Kotak NASDAQ 100 FoF at 0.24%. ICICI Prudential US Bluechip Equity Fund offers active management at 1.17% with broader sector allocation beyond pure tech. Edelweiss US Technology Equity FoF invests through JPMorgan US Technology Fund at 0.73%.
For a detailed breakdown of every available option, see our complete list of Indian mutual funds with NASDAQ exposure.
Several popular funds face restrictions. Motilal Oswal NASDAQ 100 FoF suspended fresh investments in January 2025 due to SEBI's $7 billion industry-wide overseas investment cap. ICICI Prudential NASDAQ 100 Index Fund accepts only limited SIPs. These limits stem from a 2008cap that the industry has now fully utilised. A separate $1 billion ETF-specific limit was exhausted in April 2024.
Indian investors wanting hedged exposure have limited workarounds. Direct investment through platforms under the Liberalised Remittance Scheme is limited to $250,000 per year. Investors can then independently hedge using currency futures on NSE. However, this approach requires active management, an understanding of derivatives, and additional capital to meet margin requirements. For most retail investors, this complexity outweighs potential benefits.
Budget 2025 brought some relief for international investors. The TCS threshold on foreign remittances increased from ₹7 lakh to ₹10 lakh, effective April 2025. TCS can now be offset against TDS on salary through Form 12BAA, removing the prior cash-flow burden of waiting for ITR refunds.
Long-term currency impact on NASDAQ returns
The long-term perspective settles this debate decisively. Over meaningful investment horizons, the rupee-dollar exchange rate has transformed currency risk into a consistent source of returns for Indian investors.
Consider a ₹10 lakh investment in NASDAQ 100 made in 2005. The index delivered roughly 14% annualised returns in USD terms over the next two decades. Rupee depreciation added approximately 3.5% annually. The combined return in INR terms approached 18% CAGR. That extra 3.5% compounded over 20 years means your INR returns nearly doubled compared to what a hedged investment would have delivered.
The structural forces behind this trend show no signs of reversing. India's inflation consistently exceeds US inflation by 2–4 percentage points. The trade deficit remains persistent. RBI's stated policy targets stability rather than appreciation. The REER at 108.14 suggests the rupee remains roughly 8% overvalued even after recent weakness. These factors together indicate continued gradual depreciation ahead.
For Indian investors seeking to build long-term wealth on NASDAQ, embracing unhedged exposure isn't a gamble. It aligns with a multi-decade structural trend that has rewarded patient investors at every historical checkpoint. The absence of hedged fund products in India isn't a market gap. It reflects the collective wisdom of fund managers who understand that for their investor base, currency hedging solves a problem that doesn't exist.
The real risk for most Indian NASDAQ investors isn't currency exposure. It lies in paying 2.5–4% annually to hedge away a tailwind that has reliably added to returns for over two decades. Your money works harder when you let both the market and the currency work in your favour.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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Table of Contents
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Indian investors poured record amounts into NASDAQ-tracking funds through 2024 and 2025. Every one of them faced a question that rarely gets a straight answer: Should you hedge your currency exposure?
The short answer surprises most people. For long-term investors, the rupee's steady decline against the dollar has quietly added 3–4% to annual returns. Hedging that away costs roughly the same amount. You pay to remove a tailwind.
However, the full picture warrants greater nuance. Let's break down exactly how currency hedging works, what it costs, and when it might actually make sense for Indian NASDAQ investors.
What is currency hedging, and how does it work?
Currency hedging protects international investments from exchange rate swings. When you invest ₹10 lakh in NASDAQ stocks, you carry two separate exposures. First, the performance of those US equities. Second, the movement of the USD-INR exchange rate. Hedging removes the second factor.
Fund managers typically use forward contracts to hedge. These are agreements to exchange currencies at fixed rates on future dates. A fully hedged fund rolls one-month forwards continuously, locking in exchange rates and neutralising currency movement in either direction.
Other instruments include currency futures traded on the NSE and BSE, as well as options strategies. However, none of these come free. The cost primarily depends on the interest rate spread between India and the United States.
If you're new to the index itself, our NASDAQ 100 guide for Indian investors covers everything you need to know before diving into currency considerations.
Here is the critical detail for Indian investors. Not every central NASDAQ fund available in India is currency-hedged. Motilal Oswal NASDAQ 100 ETF, ICICI Prudential NASDAQ 100 Index Fund, Kotak NASDAQ 100 FoF, and Navi NASDAQ 100 FoF all pass currency movements directly to investors. Fund managers chose this design deliberately. They recognise that rupee depreciation has historically helped Indian investors rather than hurt them.
Hedged vs unhedged returns: what the data shows
Historical data paints a clear picture. Unhedged NASDAQ investments have consistently delivered superior returns for Indian investors compared with hedged alternatives.
The most substantial evidence comes from Motilal Oswal's NASDAQ 100 ETF. Between March 2011 and December 2019, the NASDAQ 100 grew roughly 4x in dollar terms. During that same stretch, the ETF delivered 6x growth in rupee terms. That extra 50% came almost entirely from the rupee's weakening against the dollar, which moved from ₹45 to ₹71.
The pattern holds across every time period examined. Over the past decade, rupee depreciation has contributed roughly 3.4% annually to NASDAQ returns for Indian investors. Over 15 years, that figure rises to 4.3% per year. This consistent currency tailwind has added approximately one-fifth of total gains over extended holding periods.
A simple example makes the maths tangible. Suppose NASDAQ returns 15% in USD during a year when the rupee depreciates 4%. Your total return in INR terms becomes approximately 19.6%. Even if NASDAQ delivered zero returns, the 15.4% rupee depreciation between January 2022 and January 2025 alone would have generated nearly 5% annual gains purely from currency movement.
Motilal Oswal NASDAQ 100 FoF's numbers confirm this. The fund has delivered 25.2% CAGR since its November 2018 inception. These returns bake in both market performance and currency gains. A hedged version would have stripped away a significant portion of that return.
Cost of currency hedging: why the numbers don't add up
Currency hedging carries a real price tag. For INR-USD specifically, that cost is high enough to erode returns over time materially.
The primary driver is the interest rate differential between India and the US. As of late 2025, RBI's repo rate is 5.25%, while the US Federal Funds rate ranges from 3.5% to 3.75%. This creates a differential of roughly 1.5–1.75%. Through covered interest rate parity, this gap flows directly into forward premium pricing.
Current one-month forward contracts cost approximately 2.65% annually. Three-month forwards run around 3.09%. The historical average since 1997 stands at 4.38%. Long-term swaps over ten years cost even more, at 5.72% annually.
These numbers deserve context. Over a 10-year horizon, a 3% annual hedging cost compounds into a 34% reduction in total returns. Options-based hedging adds further expense, typically around 1% above forward rates.
Today's hedging costs are below historical averages as the interest rate spread between India and the US has narrowed. However, they still represent a meaningful drag. You essentially pay 2.5–3% annually to remove a currency exposure that has historically added 3–4% annually. The maths speaks for itself.
Natural hedge: how rupee depreciation works in your favour
The concept of a "natural hedge" describes how rupee depreciation automatically amplifies returns for Indian investors holding dollar assets. This isn't hedging in the traditional sense. It means embracing currency exposure because the structural trend works in your favour.
Three engines drive returns for unhedged Indian NASDAQ investors. Market performance of underlying US equities comes first. Rupee depreciation, which converts dollars into more rupees, adds a second layer. The compounding effect between these two factors creates the third.
The rupee has weakened from ₹44.27 per dollar in FY2005-06 to approximately ₹90.50 in February 2025. That represents a 104% decline in purchasing power against the dollar over two decades. Persistent inflation differentials between India (averaging 5–6%) and the US (averaging 2–3%) drive this structural trend. India's trade deficit adds further pressure.
During market crashes, this natural hedge proves especially valuable. In 2008, while the NASDAQ fell 41.89%, the rupee weakened 14.1% against the dollar, which cushioned Indian investors' losses to around 33%. During the 2022 bear market, the NASDAQ dropped 32.97%, but rupee depreciation of 10–12% limited INR losses to approximately 24%. Risk-off environments typically strengthen the dollar against emerging-market currencies, providing automatic downside protection when investors need it most.
The rupee hit a record low of ₹92 per dollar on 28 January 2025 amid US tariff concerns. RBI has actively intervened, net-selling approximately $20.1 billion in the spot market between January and September 2025. Foreign exchange reserves stood at $687–696 billion in December 2025. Despite these interventions, the long-term depreciation trend persists.
When to consider hedging your NASDAQ investments
Despite the strong case against hedging, certain situations warrant considering currency protection.
Short-term investments under two years present the strongest case for hedging. Currency movements can dominate returns over brief periods. The rupee occasionally strengthens. It appreciated 3.9% in 2010-11 and 1.7% in 2020-21. For money needed within 12–24 months, this unpredictability may justify hedging costs.
Investors with fixed withdrawal dates also benefit from tactical hedging. If you need funds for education expenses or a property purchase on a specific date, locking exchange rates eliminates last-minute uncertainty as that date approaches.
Risk-averse investors nearing retirement may accept lower returns in exchange for reduced volatility. However, domestic fixed-income investments may serve this goal better than hedging international equity exposure.
The general framework follows a simple pattern. For investments under one year, consider hedging seriously. Between one and three years, individual circumstances matter. Beyond three years, structural depreciation trends strongly favour staying unhedged. Beyond five years, hedging almost certainly destroys value.
Hedged fund options available in India
A practical reality shapes this entire discussion. No currency-hedged NASDAQ- or US-equity mutual fund is available to Indian retail investors. Every available fund carries unhedged USD exposure by design.
The funds currently accepting fresh investments include Navi NASDAQ 100 FoF with the lowest expense ratio at 0.16%, and Kotak NASDAQ 100 FoF at 0.24%. ICICI Prudential US Bluechip Equity Fund offers active management at 1.17% with broader sector allocation beyond pure tech. Edelweiss US Technology Equity FoF invests through JPMorgan US Technology Fund at 0.73%.
For a detailed breakdown of every available option, see our complete list of Indian mutual funds with NASDAQ exposure.
Several popular funds face restrictions. Motilal Oswal NASDAQ 100 FoF suspended fresh investments in January 2025 due to SEBI's $7 billion industry-wide overseas investment cap. ICICI Prudential NASDAQ 100 Index Fund accepts only limited SIPs. These limits stem from a 2008cap that the industry has now fully utilised. A separate $1 billion ETF-specific limit was exhausted in April 2024.
Indian investors wanting hedged exposure have limited workarounds. Direct investment through platforms under the Liberalised Remittance Scheme is limited to $250,000 per year. Investors can then independently hedge using currency futures on NSE. However, this approach requires active management, an understanding of derivatives, and additional capital to meet margin requirements. For most retail investors, this complexity outweighs potential benefits.
Budget 2025 brought some relief for international investors. The TCS threshold on foreign remittances increased from ₹7 lakh to ₹10 lakh, effective April 2025. TCS can now be offset against TDS on salary through Form 12BAA, removing the prior cash-flow burden of waiting for ITR refunds.
Long-term currency impact on NASDAQ returns
The long-term perspective settles this debate decisively. Over meaningful investment horizons, the rupee-dollar exchange rate has transformed currency risk into a consistent source of returns for Indian investors.
Consider a ₹10 lakh investment in NASDAQ 100 made in 2005. The index delivered roughly 14% annualised returns in USD terms over the next two decades. Rupee depreciation added approximately 3.5% annually. The combined return in INR terms approached 18% CAGR. That extra 3.5% compounded over 20 years means your INR returns nearly doubled compared to what a hedged investment would have delivered.
The structural forces behind this trend show no signs of reversing. India's inflation consistently exceeds US inflation by 2–4 percentage points. The trade deficit remains persistent. RBI's stated policy targets stability rather than appreciation. The REER at 108.14 suggests the rupee remains roughly 8% overvalued even after recent weakness. These factors together indicate continued gradual depreciation ahead.
For Indian investors seeking to build long-term wealth on NASDAQ, embracing unhedged exposure isn't a gamble. It aligns with a multi-decade structural trend that has rewarded patient investors at every historical checkpoint. The absence of hedged fund products in India isn't a market gap. It reflects the collective wisdom of fund managers who understand that for their investor base, currency hedging solves a problem that doesn't exist.
The real risk for most Indian NASDAQ investors isn't currency exposure. It lies in paying 2.5–4% annually to hedge away a tailwind that has reliably added to returns for over two decades. Your money works harder when you let both the market and the currency work in your favour.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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