Your fund app says your SIP returned 12% a year. If you earn in dollars, dirhams, euros or pounds, that number is not your return. Your return is what your money can buy where you live — and between those two numbers sits the rupee.
This isn't a warning post. It's a worked example, line by line, so you can run the same math on your own portfolio. The arithmetic never changes; only your inputs do.
The setup
- You invest ₹50,000/month for 5 years (₹30,00,000 total)
- The fund delivers 12% a year in INR — a good, realistic equity outcome
- The rupee depreciates 3% a year against your currency — close to its 10-year average against the dollar (more on that below)
- Exchange rate starts at 83, so we'll count in USD. The logic is identical for AED, EUR, GBP, SGD.
What the app shows you
| INR view | |
|---|---|
| Invested | ₹30,00,000 |
| Value after 5 years | ₹40,83,000 |
| Absolute gain | +36.1% |
| XIRR | 12.7% |
Genuinely good numbers. Now the same five years, denominated in the currency you earn and spend.
What your wallet experienced
Each month you converted that ₹50,000 from your salary. In month 1, at 83/USD, the SIP cost you $602. By month 60, with the rupee at ~96, the same ₹50,000 cost only $521. Add up all sixty conversions:
| USD view | |
|---|---|
| Actually invested | $33,559 |
| Value after 5 years (₹40.83L ÷ 96.2) | $42,439 |
| Absolute gain | +26.5% |
| XIRR | 9.4% |
Same fund. Same five years. Same rupees. 12.7% became 9.4% — a 3.3 percentage-point drag, and about a quarter of your absolute gain gone, not to fees or taxes, but to denomination.
The one formula to remember
For a quick estimate, you don't need a spreadsheet:
Your-currency return ≈ (1 + INR return) ÷ (1 + INR depreciation) − 1
At 12% INR return and 3% depreciation: 1.12 ÷ 1.03 − 1 = 8.7%. (The SIP's 9.4% comes out slightly higher because rupee-cost averaging works in your favour — later, cheaper rupees buy the same units.)
Three honest observations that fall out of this formula:
- The drag compounds like a fee. 3% depreciation behaves like a 3% annual expense ratio you can't see on any statement.
- It cuts both ways. In years the rupee is flat or strengthens, your foreign-currency return beats the INR number. The drag is a long-run average, not an annual certainty.
- A "15% fund" and a "12% fund" can be the same fund — measured from two countries.
Is 3% depreciation a fair assumption?
It's not a forecast — it's the base rate. The dollar–rupee moved from ~63 in 2015-16 to ~87-88 a decade later: about 3.3% a year. Stretch back to 2011 (~45) and the average is steeper, ~4.7%. Long-run depreciation tracks the inflation gap between India and the US, which is why it persists across decades even though individual years swing wildly. Use 3% as your default; stress-test at 4-5%.
Run it on your own portfolio
- List every SIP instalment with its date.
- Convert each instalment to your currency at that date's exchange rate — not today's. This is the step everyone skips, and it's the whole point: your cost basis lives in your currency, spread across sixty different exchange rates.
- Convert today's corpus at today's rate.
- Compute XIRR on the foreign-currency cash flows.
The gap between that number and the app's number is your personal FX drag.
A footnote worth knowing: Indian tax law does not see the world this way for you. Your mutual fund gains are computed and taxed on the INR gain — the foreign-currency fluctuation is invisible to the computation. That has a sharp edge: in a bad stretch, you can owe Indian capital gains tax on an INR profit that was, in your own currency, barely a gain at all. One more reason the number you manage by should be the one in your currency.
What to do with this (and what not to)
Don't conclude "stop investing in India." After the drag, 12% INR ≈ 9% USD — still ahead of most developed-market expectations, and India adds diversification your home market can't. The right conclusion is smaller and more useful:
- Measure in your currency, always. You can't manage a number you never see.
- Set goals in the goal's currency. A Dubai school fee is an AED goal; an INR corpus target for it is off by the drag, compounded over the years until the fee is due.
- Judge funds after the drag, not before. An Indian fund's 12% and a US index fund's 10% are not 2 points apart — in your currency they're roughly even, and the comparison should be made there.
- Remember the reverse case. If your plan is to return to India and spend in rupees, the INR number is your number — this entire article inverts. Denomination follows where the money will be spent.
Where Paisaverse fits
Step 2 above — every instalment at its own historical rate — is exactly what nobody does by hand. Paisaverse does it automatically: upload your tradebook, pick your currency, and see your true XIRR with the stock return and the currency impact separated per holding. The 12%-vs-9.4% gap in this article is the first thing our users see about their own money.
Illustrative figures; general information, not investment advice. Past currency movements don't guarantee future ones.
