Personal Finance & Money Asked by AkshayP on December 9, 2020
I am a US resident with Indian nationality. To calculate annual real gain on my investment in mutual funds in India, I am following below mentioned formula:
Annual Real Gain = Annualized Return – Expense – Annualized inflation [CPI] – INR [Indian Rupee] devaluation
For example – One of the Indian ETFs provided me 10.63% annualized return over last 10 years. The fund has expense cost of 0.07%. I am considering avg. annual inflation rate as 6.77%. Annual devaluation rate is 1.04%. Therefore, my annual real gains are: 10.63 – 0.07 – 6.77 – 1.04 = 2.75%
Please let me know if my understanding is correct.
I am planning on moving back to India at some point.
If yes, is it better to invest money in US than that in India to avoid currency devaluation and large inflation [compared to US] ?
Thanks in advance.
Inflation in India is of no consequence to you. As you are looking to keep the funds ultimately in US you should calculate the returns in USD. I.e. value of USD investment at investment exchange rate and gain in investment converted into USD at the prevailing rate.
Fund expenses are factored in returns. There is no separate expenses.
Edit: It is advisable to save in currency of retirement. It removes the currency exchange risk.
Answered by Dheer on December 9, 2020
Answer to your 2nd question.
Few people notice the opportunity cost of emerging economy compare to any industrial country (USA, EU, Japan, China, ). Besides inflation, you should calculate the opportunity cost if you invest equal similar index ETF of any industrial country. For example, US S&P 500 index past 10 years gains is average ~ 10.27% per annum. While the rupees to dollars fells from 46:1 to 68:1 (47% different). After account for the exchange rates loses, you will a big income loses.
Industrial country
Emerging economy
R&D is a crucial factor to ensure a country sustainable growth momentum. But it is possible if the country has policies to ensure the country to encourage companies to do it, produce enough educated people and enact a large employment market. Take South Korea as an example, although R&D spending is one of the world highest spender, the overall Chaebol structure limit its industry diversity and creativity. I.e. most of the South Korea core production component must import from Japan.
You can either diversify your investment to two countries stock or bet the USA market in the long run.
Answered by mootmoot on December 9, 2020
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