Rupee Vs Dollar: Where Should Indian Parents Park Their Savings For Child’s Overseas Education

For families sending their children abroad for higher education, financial planning frequently begins several years ahead of time. But among the biggest questions parents nowadays have, is no longer how much to save, but in what currency. With the rupee consistently losing value against the dollar, many are wondering if saving in dollars could protect them better against education inflation overseas.

The Rupee’s Fall Against the Dollar

The Indian rupee has been in a 10-year depreciating mode against the dollar. In 2013, $1 was worth around Rs 62. Now, it is over Rs 84. Between 2014 and 2024, the rupee has depreciated by 27.6 per cent against the dollar. 

Although this decline hasn’t been sharp on a year-on-year (y-o-y) basis, the long-term trend is clear. For a parent preparing for the cost of education of a child in the US or other dollar-linked economies, this will imply that what will be needed in rupee terms will keep going up even when the dollar fee amount doesn’t change.

This currency fluctuation will generate a big discrepancy between planned saving and eventual necessity at the time of spending when it will matter.

The Cost of Foreign Education

A four-year undergraduate course in the US will cost between $60,000 and $250,000, depending on the college and course. Add to that, the cost of living, travel, insurance, and so on, and the amount will easily cross $300,000 over a period of four years.

For an Indian family, this comes to over Rs 2.5 crore based on today’s exchange rate. If the rupee continues to depreciate in the coming years, the same path may cost much more in rupee terms.

Even in other destinations, such as Canada, the UK, or Australia, the cost of education and living is largely tied to their respective currencies, which have also appreciated against the rupee over time.

Saving in INR: The Default for Most Indian Parents

Indian parents, in general, still save in rupees through conventional investment avenues, such as fixed deposits, recurring deposits, or domestic mutual funds. These are safe, regulated, and many offer tax-benefits under different sections of the Income-tax Act, 1961, namely Section 80C. However, the return on these vehicles is subject to inflation and risk of rupee depreciation.

For instance, if a parent is saving Rs 1 lakh annually in a recurring deposit at 6 per cent for 10 years, they will accumulate around Rs 14 lakh. But if the rupee loses value during this period, the real purchasing power of that money—when converted to dollar—may be significantly lower than expected.

Exploring Dollar-Based Options

Some parents are now exploring foreign currency-denominated investments to hedge against currency risk. This includes:

• Foreign currency denominated international mutual funds invested in US or world equities

• LRS route (Liberalised Remittance Scheme) to invest abroad in foreign assets directly

• Dollar fixed deposits provided by branches of offshore banks or international platforms

All these instruments enable parents to invest their savings in the same currency in which the outgo will take place, lessening the risk resulting from future fluctuations in exchange rates.

Let’s say a parent invests $5,000 today in an international mutual fund and it returns an average of 6 per cent per annum. After 10 years, this amount will be approximately worth $9,000. If the rupee has lost value in the meantime, the profit in terms of rupee will be even greater, and the parent will have a two-way benefit—capital appreciation and positive exchange rate conversion.

Challenges In Dollar Investing

Investing in dollar is not without its risks or complications. Not all Indian families are comfortable navigating global financial platforms. There may be tax implications, compliance with the Reserve Bank of India’s (RBI’s) LRS limits (currently $250,000 per person per year), and fluctuations in foreign markets.

In addition, overseas investments are typically market-based and hence volatile. There is no assurance of return as compared to the fixed deposits of India. There are currency-linked insurance policies and dollar-denominated unit-linked insurance plans (Ulips) as well, but they are laden with hefty charges and long duration lock-in.

A Balanced Strategy Might Prove Most Effective

Investors should typically follow a balanced approach. Parents can begin with rupee-based savings for periodic contributions and then, as the target of studying abroad approaches, slowly diversify some portion into dollar-denominated investment. For instance, in the last 3-5 years leading up to the child leaving, transferring part of the corpus to dollar assets can reduce currency risk.

This strategy provides both comfort and security in the first few years, and also takes care of the eventual foreign currency outflow. 

Considering the increase in the cost of foreign education and the trend of a declining rupee, parents saving only in rupees might fall short of the intended corpus. While investments in dollars are risky, they can prove to be an effective hedge against currency volatility. For parents planning to send their children abroad, the secret lies in starting early, remaining diversified, and examining the currency exposure of their education fund from time to time.