Non Resident Indians (NRIs) returning to India are in a quandary about the impact of the falling dollar. The recent phenomenon of the rupee appreciating sharply against the U.S. dollar is having ripple effect on the UAE currency Dirham, pegged to the dollar.

The dollar has fallen by more than 13% (as compared to the rupee) and may decline while further worsening the situation for NRIs in the U.S. and those in Gulf countries like the UAE, Quatar and Bahrain. Apparently, the dollar is out of favour with the currency markets anymore.

The sinking exchange rate of dollar is hurting domestic prices through imports. UAE's imports are from Europe, UK and Asia where currencies have appreciated against the dollar. Depegging or revaluing the dirham could well be the only solution but the Central Bank is against it.

For an expatriate population out there, which is a mix of Indians and other nationalities, reeling under unreasonably high inflation and currency depreciation, the recent blow has the power of wiping out more than one -third of their earnings which have reduced to a miniscule sum already.

The effect is more pronounced for those NRIs in the Gulf, who have huge amounts of loans and bills to settle in their home country, and that quite includes the small and middle-income groups.

Interest rates in India are close to 9% for fixed deposits (10% for senior citizens). Interest rates in the US are also around 5% and further going down.

If you are an NRI in the U.S. and have an asset allocation plan consisting of 60% diversified stock and 40% fixed income (all held in dollars) and plan to come to India after retiring, you could look at the following ways of refurbishing your overall portfolio to minimize any losses.

NRI investments:

If the 40% fixed income portion of your NRI portfolio (earning 4%-5% in the US) is held in dollars, it may not keep pace with the increasing inflation in India (which is a lot higher).

The way out of it is to move your long-term fixed income allocation and the India part of your stock allocation in rupees to India.

You can choose to diversify across categories of bank fixed deposits and debt mutual funds. You can keep the rest (diversified stock) in U.S. Mutual funds to reap the benefits of international equity funds that invest outside India.

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