Understanding currency risk when investing in US ETFs from India
Every Indian investor in US ETFs places two bets at once. The first is in American markets. The second is on the dollar-rupee exchange rate. This dual exposure is what experts call currency risk: USETFs for India investors must understand before deploying capital abroad.
The good news? Over the past decade, the rupee has depreciated roughly 3–3.5% per year against the dollar. This structural slide has consistently boosted returns for Indian investors holding dollar assets. A 10% S&P 500 gain often translates into a 13–15% return in rupee terms.
But currency moves cut both ways. A strengthening rupee can quietly erode your gains. Understanding how this works — and what you can do about it — separates informed investors from those caught off guard.
What is currency risk and how it affects your returns
Currency risk arises because US ETFs trade in dollars. You convert rupees to dollars when you buy. You convert dollars back to rupees when you sell. The exchange rate at each point directly shapes your final return.
Here is the formula that drives everything:
INR return = (1 + USD asset return) × (1 + currency change) − 1
Consider a real example. You invest ₹10 lakh in an S&P 500 ETF when USD/INR sits at 83. You receive roughly $12,048. The ETF gains 10%, growing your holding to $13,253.
If the rupee weakens to 87 by the time you sell, your rupee value becomes ₹11.53 lakh — a 15.3% return. The same 10% ETF gain with a rupee strengthening to 79 yields only ₹10.47 lakh — just 4.7%. Currency movement alone creates a 10-percentage-point swing in your outcome.
This is not abstract theory. During the 2013 Taper Tantrum, the rupee crashed from ₹54 to ₹68. The S&P 500 returned about 30% in dollars that year. Indian investors earned nearly 55–60% in rupee terms. Almost half of that return came from currency alone.
Historical USD/INR movement and its impact on returns
The dollar-rupee trajectory tells a clear directional story. The rupee has moved from roughly ₹63 per dollar in 2014 to approximately ₹87–88 by early 2026. That represents a cumulative depreciation of about 38%.
Key milestones in this journey stand out. In 2018, the rupee fell 9.2% as oil prices surged and emerging market currencies weakened globally. The sharpest recent decline occurred in 2022, when the rupee fell 11.2% amid the Russia-Ukraine war and aggressive Fed rate hikes. By January 2025, the rupee crossed ₹86 for the first time, marking fresh all-time lows.
The USD INR impact on returns has been overwhelmingly positive for long-term investors. An Indian investor who bought the S&P 500 in early 2013 at ₹54.50 and held through December 2023 at ₹83 saw the S&P 500 deliver about 244% in dollar terms. Add the 52% currency depreciation, and the combined rupee return reached approximately 424%.
The structural reasons behind continued depreciation remain intact. India runs 2–3% higher inflation than the US. The country maintains a persistent current account deficit of 1–3% of GDP. These fundamentals drive the rupee's long-term slide—a pattern that has persisted for over three decades.
The RBI spent an estimated $70–80 billion in reserves between September 2024 and January 2025 to defend the rupee. Reserves dropped from roughly $705 billion to about $625–635 billion. Despite this massive intervention, the rupee continued to weaken. This tells you something about the strength of the underlying depreciation forces.
Hedged vs unhedged ETF options for Indian investors
Here is a fact that surprises many investors. No currency-hedged US ETFs are available to Indian investors. Unlike European investors, who can access EUR-hedged S&P 500 ETFs, Indian investors have no equivalent product.
Every Indian mutual fund offering US market exposure — Motilal Oswal S&P 500 Index Fund, ICICI Prudential US Bluechip, Franklin India Feeder US Opportunities — remains completely unhedged. Every major platform, including Winvesta, Vested, and INDmone, offers no hedging tools.
The hedged vs unhedged ETF debate might seem one-sided without options. But the absence of hedged products actually makes economic sense. Hedging the INR/USD pair costs roughly 2–4% per year. This cost reflects the interest spread between India's 6.25–6.5% repo rate and the US Federal Reserve's 4.25–4.5% funds rate.
This hedging cost is roughly equal to the expected annual depreciation. Hedging becomes a break-even proposition at best — and a drag on returns at worst.
Run the numbers over 20 years. A ₹10 lakh investment compounding at 14% unhedged (10% market return plus 3.5% currency tailwind) grows to roughly ₹1.37 crore. The same amount hedged at 9% after costs reaches only about ₹56 lakh. For horizons of five years or longer, staying unhedged is the clear winner.
Strategies to manage currency risk
While hedging products do not exist, several practical strategies help manage forex risk in investment portfolios.
Use rupee-cost averaging through monthly SIPs. Investing a fixed rupee amount each month automatically buys more dollars when the rupee is strong and fewer when it is weak. A ₹50,000 monthly SIP through a year where USD/INR swings between 81 and 85 achieves a blended rate near 83. This smooths out the full volatility range without any active management. You never need to predict where the exchange rate is heading next month or next quarter.
Indian mutual fund SIPs in international funds handle this automatically. The fund house converts at institutional rates, typically 10–30 paise per dollar higher than retail bank rates.
Keep your sale proceeds in dollars. When using LRS-route platforms, your sale proceeds can stay in your US brokerage account. Dividends can be reinvested directly in dollars. No rule requires you to bring money back within any timeframe. Convert to rupees only when you actually need the funds. This simple step eliminates a full currency conversion and the associated costs and risks.
Diversify across currencies. Adding European, Japanese, or other international markets alongside US ETFs reduces your single-currency concentration. When the dollar weakens against the euro, non-US holdings can offset losses on the dollar leg.
Use tax-loss harvesting tied to currency moves. If a US ETF rises 3% in dollars but the rupee appreciates 5% simultaneously, your position shows a loss in rupee terms. Selling books is a capital loss that offsets other gains. Reinvesting in a similar fund maintains your market exposure.
Time for larger investments during rupee strength. While timing currency markets is difficult, deploying larger lump-sums during periods of rupee appreciation yields more dollars per rupee. Watch for periods of strong FII inflows into India, which typically push the rupee higher temporarily.
When currency movements work in your favour
The rupee depreciation benefit for Indian investors has been remarkably consistent. Over any rolling 10-year period since liberalisation, the rupee has depreciated against the dollar. This pattern has held through multiple economic cycles, governments, and global crises.
The numbers are striking over long horizons. From 2005 to 2024, the S&P 500 delivered roughly 450–500% in dollar terms—the rupee depreciated by 5% over the same period—from ₹ 43 to ₹ 84. The combined return for Indian investors exceeded 975% in rupee terms. Currency depreciation nearly doubled the already exceptional market returns.
Indian IT professionals, freelancers, and exporters enjoy a natural hedge here. Their income arrives in dollars. Their US ETF investments are denominated in US dollars. For them, rupee-denominated investments create more currency mismatch than dollar-denominated investments.
The counterpoint deserves mention. Rupee appreciation periods do occur. In 2017, the rupee strengthened by about 6% from ₹68 to ₹64. This reduced S&P 500 returns by roughly 8 percentage points for Indian investors. During 2009–2010, a 13% rupee appreciation trimmed a 70% S&P 500 recovery down to about 48% in rupee terms.
These episodes typically coincide with strong capital inflows into India, falling commodity prices, or broad dollar weakness. They have been the exception, not the rule. Over any 10-year window, the depreciation trend has overwhelmed these temporary reversals.
Long-term perspective on rupee depreciation
Over the past 20 years, the rupee has depreciated at an average annual rate of about 3.3%. Going back to 1991, when the rupee was near ₹26, the compound annual depreciation rate was roughly 3.6%.
This consistency stems from a single dominant factor: the inflation differential. India's inflation has consistently run 2–3 percentage points above US levels. Purchasing power parity theory predicts that the higher-inflation currency will depreciate by roughly the inflation gap. The rupee has followed this textbook pattern almost exactly. Barring a dramatic structural shift in India's inflation trajectory, this trend is likely to persist for years ahead.
Other structural forces reinforce the trend. India imports $150–180 billion worth of oil annually. This creates steady dollar demand. Portfolio flows remain volatile, swinging between strong inflows and sudden outflows. The fiscal deficit adds pressure through government borrowing needs.
The currency risk in the US investment landscape also involves important regulatory factors. The LRS limit stays at $250,000 per person per financial year. TCS on overseas remittances stands at 20% above a ₹10 lakh threshold proposed in the 2025–26 Budget. This TCS is not an additional tax — it reduces your income tax liability — but it creates a cash-flow drag.
Capital gains rules changed in July 2024. US ETFs held for over 24 months now attract 12.5% long-term capital gains tax without indexation. Short-term gains face your slab rate. Filing Form W-8BEN reduces US dividend withholding from 25% to about 15% under the India-US tax treaty.
For Indian investors committed to long-term wealth building, the currency risk in US ETFs has historically been more friend than foe. The rupee's structural depreciation adds a tailwind that compounds powerfully over decades. The most effective approach combines regular SIPs for cost averaging, keeping proceeds in dollars, and maintaining a horizon long enough to ride out short-term currency volatility.
If you want to compare domestic and direct US routes, read Should You Invest in an Indian Listing of a US ETF or the US ETF Directly? " for a detailed breakdown. And before you start investing, review things to keep in mind when investing in the US stock market for essential checklists.
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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Every Indian investor in US ETFs places two bets at once. The first is in American markets. The second is on the dollar-rupee exchange rate. This dual exposure is what experts call currency risk: USETFs for India investors must understand before deploying capital abroad.
The good news? Over the past decade, the rupee has depreciated roughly 3–3.5% per year against the dollar. This structural slide has consistently boosted returns for Indian investors holding dollar assets. A 10% S&P 500 gain often translates into a 13–15% return in rupee terms.
But currency moves cut both ways. A strengthening rupee can quietly erode your gains. Understanding how this works — and what you can do about it — separates informed investors from those caught off guard.
What is currency risk and how it affects your returns
Currency risk arises because US ETFs trade in dollars. You convert rupees to dollars when you buy. You convert dollars back to rupees when you sell. The exchange rate at each point directly shapes your final return.
Here is the formula that drives everything:
INR return = (1 + USD asset return) × (1 + currency change) − 1
Consider a real example. You invest ₹10 lakh in an S&P 500 ETF when USD/INR sits at 83. You receive roughly $12,048. The ETF gains 10%, growing your holding to $13,253.
If the rupee weakens to 87 by the time you sell, your rupee value becomes ₹11.53 lakh — a 15.3% return. The same 10% ETF gain with a rupee strengthening to 79 yields only ₹10.47 lakh — just 4.7%. Currency movement alone creates a 10-percentage-point swing in your outcome.
This is not abstract theory. During the 2013 Taper Tantrum, the rupee crashed from ₹54 to ₹68. The S&P 500 returned about 30% in dollars that year. Indian investors earned nearly 55–60% in rupee terms. Almost half of that return came from currency alone.
Historical USD/INR movement and its impact on returns
The dollar-rupee trajectory tells a clear directional story. The rupee has moved from roughly ₹63 per dollar in 2014 to approximately ₹87–88 by early 2026. That represents a cumulative depreciation of about 38%.
Key milestones in this journey stand out. In 2018, the rupee fell 9.2% as oil prices surged and emerging market currencies weakened globally. The sharpest recent decline occurred in 2022, when the rupee fell 11.2% amid the Russia-Ukraine war and aggressive Fed rate hikes. By January 2025, the rupee crossed ₹86 for the first time, marking fresh all-time lows.
The USD INR impact on returns has been overwhelmingly positive for long-term investors. An Indian investor who bought the S&P 500 in early 2013 at ₹54.50 and held through December 2023 at ₹83 saw the S&P 500 deliver about 244% in dollar terms. Add the 52% currency depreciation, and the combined rupee return reached approximately 424%.
The structural reasons behind continued depreciation remain intact. India runs 2–3% higher inflation than the US. The country maintains a persistent current account deficit of 1–3% of GDP. These fundamentals drive the rupee's long-term slide—a pattern that has persisted for over three decades.
The RBI spent an estimated $70–80 billion in reserves between September 2024 and January 2025 to defend the rupee. Reserves dropped from roughly $705 billion to about $625–635 billion. Despite this massive intervention, the rupee continued to weaken. This tells you something about the strength of the underlying depreciation forces.
Hedged vs unhedged ETF options for Indian investors
Here is a fact that surprises many investors. No currency-hedged US ETFs are available to Indian investors. Unlike European investors, who can access EUR-hedged S&P 500 ETFs, Indian investors have no equivalent product.
Every Indian mutual fund offering US market exposure — Motilal Oswal S&P 500 Index Fund, ICICI Prudential US Bluechip, Franklin India Feeder US Opportunities — remains completely unhedged. Every major platform, including Winvesta, Vested, and INDmone, offers no hedging tools.
The hedged vs unhedged ETF debate might seem one-sided without options. But the absence of hedged products actually makes economic sense. Hedging the INR/USD pair costs roughly 2–4% per year. This cost reflects the interest spread between India's 6.25–6.5% repo rate and the US Federal Reserve's 4.25–4.5% funds rate.
This hedging cost is roughly equal to the expected annual depreciation. Hedging becomes a break-even proposition at best — and a drag on returns at worst.
Run the numbers over 20 years. A ₹10 lakh investment compounding at 14% unhedged (10% market return plus 3.5% currency tailwind) grows to roughly ₹1.37 crore. The same amount hedged at 9% after costs reaches only about ₹56 lakh. For horizons of five years or longer, staying unhedged is the clear winner.
Strategies to manage currency risk
While hedging products do not exist, several practical strategies help manage forex risk in investment portfolios.
Use rupee-cost averaging through monthly SIPs. Investing a fixed rupee amount each month automatically buys more dollars when the rupee is strong and fewer when it is weak. A ₹50,000 monthly SIP through a year where USD/INR swings between 81 and 85 achieves a blended rate near 83. This smooths out the full volatility range without any active management. You never need to predict where the exchange rate is heading next month or next quarter.
Indian mutual fund SIPs in international funds handle this automatically. The fund house converts at institutional rates, typically 10–30 paise per dollar higher than retail bank rates.
Keep your sale proceeds in dollars. When using LRS-route platforms, your sale proceeds can stay in your US brokerage account. Dividends can be reinvested directly in dollars. No rule requires you to bring money back within any timeframe. Convert to rupees only when you actually need the funds. This simple step eliminates a full currency conversion and the associated costs and risks.
Diversify across currencies. Adding European, Japanese, or other international markets alongside US ETFs reduces your single-currency concentration. When the dollar weakens against the euro, non-US holdings can offset losses on the dollar leg.
Use tax-loss harvesting tied to currency moves. If a US ETF rises 3% in dollars but the rupee appreciates 5% simultaneously, your position shows a loss in rupee terms. Selling books is a capital loss that offsets other gains. Reinvesting in a similar fund maintains your market exposure.
Time for larger investments during rupee strength. While timing currency markets is difficult, deploying larger lump-sums during periods of rupee appreciation yields more dollars per rupee. Watch for periods of strong FII inflows into India, which typically push the rupee higher temporarily.
When currency movements work in your favour
The rupee depreciation benefit for Indian investors has been remarkably consistent. Over any rolling 10-year period since liberalisation, the rupee has depreciated against the dollar. This pattern has held through multiple economic cycles, governments, and global crises.
The numbers are striking over long horizons. From 2005 to 2024, the S&P 500 delivered roughly 450–500% in dollar terms—the rupee depreciated by 5% over the same period—from ₹ 43 to ₹ 84. The combined return for Indian investors exceeded 975% in rupee terms. Currency depreciation nearly doubled the already exceptional market returns.
Indian IT professionals, freelancers, and exporters enjoy a natural hedge here. Their income arrives in dollars. Their US ETF investments are denominated in US dollars. For them, rupee-denominated investments create more currency mismatch than dollar-denominated investments.
The counterpoint deserves mention. Rupee appreciation periods do occur. In 2017, the rupee strengthened by about 6% from ₹68 to ₹64. This reduced S&P 500 returns by roughly 8 percentage points for Indian investors. During 2009–2010, a 13% rupee appreciation trimmed a 70% S&P 500 recovery down to about 48% in rupee terms.
These episodes typically coincide with strong capital inflows into India, falling commodity prices, or broad dollar weakness. They have been the exception, not the rule. Over any 10-year window, the depreciation trend has overwhelmed these temporary reversals.
Long-term perspective on rupee depreciation
Over the past 20 years, the rupee has depreciated at an average annual rate of about 3.3%. Going back to 1991, when the rupee was near ₹26, the compound annual depreciation rate was roughly 3.6%.
This consistency stems from a single dominant factor: the inflation differential. India's inflation has consistently run 2–3 percentage points above US levels. Purchasing power parity theory predicts that the higher-inflation currency will depreciate by roughly the inflation gap. The rupee has followed this textbook pattern almost exactly. Barring a dramatic structural shift in India's inflation trajectory, this trend is likely to persist for years ahead.
Other structural forces reinforce the trend. India imports $150–180 billion worth of oil annually. This creates steady dollar demand. Portfolio flows remain volatile, swinging between strong inflows and sudden outflows. The fiscal deficit adds pressure through government borrowing needs.
The currency risk in the US investment landscape also involves important regulatory factors. The LRS limit stays at $250,000 per person per financial year. TCS on overseas remittances stands at 20% above a ₹10 lakh threshold proposed in the 2025–26 Budget. This TCS is not an additional tax — it reduces your income tax liability — but it creates a cash-flow drag.
Capital gains rules changed in July 2024. US ETFs held for over 24 months now attract 12.5% long-term capital gains tax without indexation. Short-term gains face your slab rate. Filing Form W-8BEN reduces US dividend withholding from 25% to about 15% under the India-US tax treaty.
For Indian investors committed to long-term wealth building, the currency risk in US ETFs has historically been more friend than foe. The rupee's structural depreciation adds a tailwind that compounds powerfully over decades. The most effective approach combines regular SIPs for cost averaging, keeping proceeds in dollars, and maintaining a horizon long enough to ride out short-term currency volatility.
If you want to compare domestic and direct US routes, read Should You Invest in an Indian Listing of a US ETF or the US ETF Directly? " for a detailed breakdown. And before you start investing, review things to keep in mind when investing in the US stock market for essential checklists.
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.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs
