Rupee slide, overseas inflation key when planning foreign education

Factoring in only domestic inflation could lead to a shortfall

The rupee recently crossed the 90 level against the United States (US) dollar, reinforcing a long-term trend of gradual depreciation. For Indians with future spending goals denominated in foreign currencies — such as children’s overseas education, international travel or medical treatment abroad — this weakening can have a significant impact. Investors must account for currency depreciation in their financial plans and use instruments that can cushion this erosion in purchasing power.

 

Key drivers 

A widening trade deficit has been one of the principal forces weakening the Indian rupee. “Record gold imports have contributed in a big way,” says Sachin Jain, managing partner, Scripbox. 

Merchandise exports — particularly to the US — have softened. “Analysts expect India’s current account deficit to rise to 1.4 per cent of gross domestic product (GDP) in FY26 compared to 0.6 per cent in FY25,” says Karan Aggarwal, co-founder and chief investment officer (CIO), Elever.

 

Global market sentiment has added to the pressure. With concerns around India’s earnings growth and valuations, foreign institutional investors (FIIs) have been persistent sellers, withdrawing about ₹1.55 trillion (about $17 billion) in 2025 so far. This has put further strain on the currency.

 

“Uncertainty around the India–US trade framework and slower capital formation have also weighed on foreign inflows,” says Anooshka Soham Bathwal, founder and chief executive officer (CEO), Dhanvesttor.

 

Impact on goals 

A weaker rupee pushes up the rupee cost of all dollar-linked expenses. A $1,000 tuition fee costs ₹90,000 when the exchange rate is ₹90 and ₹1 lakh when it reaches ₹100. This applies across overseas spending categories. “Even a modest annual depreciation compounds significantly over multiple years, causing large, last-minute budget gaps,” says Bathwal.

 

Planning for overseas goals 

Historically, the rupee has depreciated by around 3–5 per cent annually against the US dollar, though not in a straight line. “With inflation and interest rate differentials vis-à-vis the US narrowing, the depreciation rate should be trimmed slightly,” says Chanchal Agarwal, chief investment officer, Equirus Family Office. Nonetheless, experts suggest using the long-term average of 3–5 per cent when planning for dollar-denominated goals.

 

Investors often underestimate the final corpus required for overseas education by using only domestic inflation in their assumptions. “The ultimate number could be different if inflation of the overseas country, specifically for the designated expense, plus currency depreciation, is taken into consideration,” says Agarwal. Jain adds that an investor trying to finance global education or any other overseas goal should have a return expectation of a minimum 11–12 per cent.

 

Effective hedging instruments 

To protect against depreciation, investors should maintain around 15–20 per cent of their equity allocation in overseas assets. This can be achieved through international active funds, exchange-traded funds (ETFs), index funds or feeder funds offered by Indian mutual fund houses. Outbound funds in Gujarat International Finance Tec-City (Gift City) provide another route. Global investment platforms such as Vested and IndMoney offer direct access to foreign funds and ETFs.

 

“The easiest hedge for the vast majority of investors is gold, as its price fluctuates based on the international price of gold multiplied by the current INR–USD exchange rate,” says Jain. A 10 per cent allocation to gold can help protect portfolios from currency-driven value erosion. Aggarwal adds that sophisticated investors planning expenses in Japan, the Eurozone, the United Kingdom or the US may also hedge their exposure by going long on futures contracts for these currencies.

 

Mistakes to avoid 

A common error is using only domestic inflation — typically around 6–8 per cent — when planning for overseas education. Jain points out that investors frequently ignore global inflation and currency trends, leading to shortfalls close to the goal date. Bathwal adds that some investors try to time the rupee–dollar movement, which is nearly impossible, while others overreact by shifting disproportionately into dollar assets. Avoiding global diversification altogether is another mistake, as it leaves portfolios more vulnerable to currency and domestic market shocks.