From an absolute value perspective, 1 cent is approximately equal to 0.83 Indian rupees (based on the September 2024 exchange rate of 1 USD = 83 INR), and this amount itself does not have direct investment value. If foreign exchange investment is taken into account, at least 100 US dollars (8,300 rupees) is needed to effectively reduce the proportion of transaction costs. Typical foreign exchange trading platforms such as Zerodha charge a commission of 0.03% per transaction, but the minimum fee is 10 rupees. This means that a single transaction amount needs to exceed 33,000 rupees to bring the rate down to a reasonable level.
Backtesting of historical data shows that the average annual volatility of the USD/INR exchange rate over the past five years was only 4.5%, far lower than the 18% fluctuation level of the stock market. Even if the exchange rate trend is accurately predicted, investing 100 US dollars in the rupee against the US dollar transaction can only achieve the best annual return of 4.5 US dollars (360 rupees), and the net return after deducting transaction costs is approximately 3.6 US dollars. This level of return is only equivalent to 70% of the current fixed deposit interest rate of Indian banks (6.5%), and exchange rate risk needs to be borne.
From a micro investment perspective, by making regular fixed investments of 1 cent (0.83 rupees) per day through small change investment apps such as Groww or Coin, the accumulated amount in a year is only 302 rupees. Even with an outstanding annualized return of 12%, the year-end value is only 338 rupees, and the net profit of 36 rupees is just enough to buy a street snack. This investment efficiency is far lower than the minimum investment threshold of 500 rupees for Indian mutual funds, which can achieve an average annual return of 10-12%.
Transaction cost economics indicates that small investments are severely eroded by fixed costs. International remittance fees are usually 200 to 300 rupees each time, which means that a 30% fee is charged for transferring one US dollar. Digital payment platforms such as PayPal charge 4.4% plus a fixed fee, and the actual rate for a $1 transaction can be as high as 7.2%. These cost structures make an investment of 1 cent in indian rupees level completely uneconomical.
From the perspective of inflation, India’s average CPI in recent years has been 5.5%, and the daily earnings of 0.83 rupees need to achieve a real return of 7% to retain their value. However, the yield on India’s 91-day government bonds is only 6.8%, and the actual return after adjusting for inflation is merely 1.3%. This means that small cash assets are actually depreciating every day, which is consistent with the research conclusion of Nobel laureate in economics Shiller on the impact of inflation on small savings.
A more rational strategy is to pool small amounts of funds for investment. Through the National Savings Certificate (NSC) program of India, a minimum investment of 500 rupees can earn an annual interest rate of 7.2%. The annual return of the Public provident fund (PPF) is 7.1% and it is tax-exempt. The risk-reward ratio of these formal channels is far superior to attempts to profit from small foreign exchange transactions, which is also the fundamental reason why the Reserve Bank of India continuously promotes financial inclusion.
Opportunity cost needs to be taken into account when making actual decisions. Spending 10 minutes studying the time value of a 1-cent investment is equivalent to a loss of 25 rupees based on the average wage in India. However, professional foreign exchange traders need to analyze for 4 to 6 hours a day to achieve stable returns. This time investment is completely disproportionate to the expected returns. The Securities and Exchange Commission of India (SEBI) has repeatedly warned investors to avoid irrational micro-investment behaviors and recommended systematic investment through mutual funds.