Found a interesting article from Motilal oswal on how NAV and iNAV, currency depreciation is calculated on their Motilal oswal 100 ETF.
Quite a interesting read.
The rebalancing happens 4 times in a year for nasdaq 100 and I searched for S&P500 top 50 ETF. Maybe it is US Regulation which makes 4 times rebalancing.
For nifty 50, I think it is twice a year. Which is better 4 times or two.
Zerodha - Varsity
Module 11 - Chapter 29 should have a section on the above. I normally go to Varsity to get answers to my query but could not find the same on International ETF issued from India. Maybe it would be nice if the concerned update this section in Varsity. @Bhuvan
Agreed that some % of the return generated by such international funds are due to the rupee depreciation(dollar appreciation), but will this not get negated to some extent when Rupee is converted to USD at the time of investing in such foreign securities ?
I was just trying to point out that since the investments are in foreign securities, the returns would include not just the price appreciation of the underlying but also the dollar appreciation.
But then again, the portion of return attributable to dollar appreciation will partly get nullified by converting INR to USD at the time of investing.
In summary:
If no new investments are made in foreign securities, the return generated by the fund will be higher than the returns generated by the underlying securities, due to the dollar appreciation
However, where investments are regular, due to constant conversion from INR to USD, the return due to dollar appreciation will be insignificant.
Query
I do understand what you say but with inr usd, it is always a one way street inr keeps depreciating and has never improved over a longer period of time. so
Even if i keep frequently buy at current rates, the end result will always be genuine gain on the constituents plus currency depreciation. 2018 it was 68 and today it is 84. In the next 5 years it will be 90 plus.
Yeah… U r correct. In long-term, the dollar appreciation effect can be significant.
It is hard for rupee to appreciate in the long-run, as we are net importers.
If I am not wrong, the RBI’s aim is to ensure that the rupee depreciates at a slower rate, rather than its appreciation.
Maybe, in the future, de-dollarization can be one among the many steps that can lead to rupee appreciation.
My point regarding regular investment/redemption was that, the conversion to and from INR involves exchange spreads which are charged by the banks.
In the past 1 year, the rupee has depreciated by
~ 1.1%…
Assuming we invested regularly in US securities, we would have invested at the avg exchange rate, and after considering the conversion charges etc, the net effect due to dollar appreciation might probably be 0.5% or less.
PS:
I could be wrong, I’m just blabbering something, please ignore if it doesn’t make sense.