Currency Risk in Global Investing: Hedge or Not to Hedge?

When an Indian investor buys a USD-denominated global fund, they are making two bets at once: a bet on the underlying assets, and a bet on the USD/INR exchange rate. Hedging is simply the decision to switch off the second bet. Whether you should depends entirely on which direction you expect the rupee to travel — and whether you want that exposure at all.

For most Indian investors with rupee liabilities and long horizons, the currency 'bet' has historically worked in their favour, because the rupee has tended to weaken against the dollar over time. Hedging it away can mean paying to remove an exposure that has, on average, helped.

Hedging is not free. The cost of hedging INR against USD is driven primarily by the interest-rate differential between the two currencies, and for the INR–USD pair it has typically run in the region of 2–4% per annum. That is a meaningful, recurring drag — it comes off your return every year, regardless of what the exchange rate ultimately does.

So the question is not merely 'do I want currency risk?' but 'am I willing to pay 2–4% a year to remove an exposure that has historically added to rupee returns?' For long-horizon investors, the answer is often no.

Stay unhedged when: your horizon is long, your liabilities are partly in foreign currency, and you want the rupee-weakness cushion in risk-off episodes. Consider hedging when: your horizon is short, you have a near-term foreign-currency liability already locked, or you hold a strong conviction that the rupee will strengthen.

Most GIFT City equity products are offered unhedged by design, precisely because the typical Indian investor's profile favours keeping the currency exposure. This is educational framing — match the decision to your own objectives with professional input.