by Jay T. 2 June, 2012 Investment Tips 0 Comments

5 Tips To Manage Currency Exposure And Exchange Rate Risks In Your Portfolio. These Tips Will Guard You From The Uncertainties And Exchange Rate Risks.

The lowest exchange value of the rupee last seen was at about INR 38.48 to a dollar during the year Oct 2007, since then we have seen the rupee depreciating to a great extent.  Now the rupee currently trading at about INR 56.3 which is almost a devaluation of 46.4% of the Indian currency has truly traumatized the investor’s sentiments.

In this great currency fluctuation fiasco, how much of your portfolio has been affected is a concern every investor should cater to. The following points will guard you against the troubles caused due to exchange fluctuations.

Know The Background Of The Company

Firstly any investor should be vigilant about the background of the company shares he holds. Eg) If an Indian company whose shares you hold have majority of their operations based on importing oil from abroad, then this company is rightly to face a huge blow in their financial sector bringing down your portfolio value.

Don’t Place All Your Eggs In One Basket

Secondly, having stocks in companies who have diversified their portfolio abroad will help you take a breather when it comes to exchange rates. That is if the company is based in America but it has diversified all around the world in India or China. So even when America was hit by recession this company may have profited in India thus uplifting your portfolio.

Invest in Large Export Companies

Investing in an Indian company who’s into large measures of export would be a safer bet knowing how volatile the rupee is. Various IT firms like Infosys, Wipro, TCS export many of their services abroad and hence holdings in such companies is comparatively safer and profitable in a scenario of a depreciating rupee. Hence a highly depreciating rupee will ftch these company’s a very high return for the services they are exporting.

Choose The Right Mutual Fund

Many fund managers design their funds in such a way that they hedge their portfolios against currency movements, while others do not. You need to read your funds prospectus to understand this and see the sectors which your fund has invested in.

Avoid Investments In ETF’S Or Understand How a Currency Product Fits In Your Portfolio

An Exchange Traded fund is just like an index fund representing a basket of stocks that reflect an index such as Nifty. By owning an ETF, you get the diversification of an index fund plus the flexibility of a stock. The Forex market is the largest and most liquid of all markets, moving nearly $3 trillion worth of trading each day. However, just because an asset class in now available for regular retail investors doesnt necessarily mean, they need to run out an add it to a portfolio. One should always understand if his portfolio already has a high amount of currency exposure then staying away from ETF’s would be the right option.