Stock Market · Mutual funds, deeper

International funds

International mutual funds give Indian investors exposure to global markets. Primarily US stocks, but also Europe, China, Japan, and emerging markets. They're a powerful diversification tool, though regulatory restrictions have made the space turbulent.

Why diversify internationally

1. Reduce concentration risk. Your salary, your home, AND most of your portfolio are tied to India's economy

2. Access companies unavailable in India: Apple, Google, Microsoft, Nvidia, Tesla

3. Different economic cycles, when India underperforms, US/global may outperform

4. Hedge against Rupee depreciation

How international funds work

Two structures:

• Fund of fund: invests in a foreign ETF (most common). Layered costs.
• Feeder fund: invests in a foreign mutual fund directly.

Returns come from underlying foreign equities + currency movement. A weakening Rupee adds to returns; strengthening Rupee subtracts.

The regulatory hurdle

RBI's Liberalised Remittance Scheme (LRS) caps each Indian investor at $250,000 per year sent abroad. But MFs use a separate institutional limit. In 2022, SEBI froze new subscriptions to international FoFs because the industry hit its limit. Some funds reopened in 2024 with restricted SIP amounts.

Popular international fund categories

• US Index funds (S&P 500, Nasdaq 100)
• Global tech funds
• Emerging markets funds
• China/Hong Kong funds
• ESG/Sustainability themes

Tax treatment

The 2023 rules put these on slab rate regardless of holding period. The 2024 change reversed that: 24 months to reach long-term, then 12.5% without indexation. The old 20%-with-indexation regime is gone either way.

> Note the 24-month clock. It's double the wait an Indian equity fund asks for, which quietly makes international exposure a worse fit for money you might want back inside two years.

The choices you're actually making

• How much to allocate. Something in the 10-20% range is where the diversification benefit shows up in most historical studies without the currency swings dominating your returns; below that it barely moves the portfolio, above it you've substituted one concentration for another.
• Broad index or theme. A broad US index is the cheapest and least concentrated way in. Sector and country themes cost more and bet on a narrower story.
• Fund or direct stocks. Direct US stocks via LRS change the tax and reporting picture, at the cost of real operational complexity. Worth weighing only once the amounts justify the paperwork.
• Domestically listed ETFs tracking global indices are another route, though availability opens and closes with the industry's overseas investment limit

Takeaway. International funds address a real concentration problem. Your salary, your home and most of your portfolio are all India-linked. The costs are a 24-month wait for the 12.5% long-term rate, currency risk in both directions, and SEBI overseas limits that have frozen new investment at times.