Lure Of Foreign Markets

Risk-return profile of an investment portfolio is optimised through a reasonable amount of diversification in asset classes and the sub-asset classes to which the exposure is taken. In equity, this diversification may be achieved by investing in different market caps, sectors or specific themes. One such diversification that is becoming popular is international investments or foreign currency investments. The fundamental principle - the risk profile - is quite different from Rupee-based or domestic investments. While making overseas investments, one converts Rupee into foreign currency to buy assets, say, equity. While selling or redeeming the investments the reverse conversion happens. During such conversions, forex risk comes in, depending upon whether the Rupee is stronger or weaker, in relation to the original position. If Rupee is weaker then you make a currency gain, and if Rupee...