International funds offered by domestic mutual funds have delivered impressive returns in recent years. US-focused schemes have performed exceptionally well, posting about 25 per cent annualised returns over the past five years.
However, Indian investors do not have a free hand in investing in these funds due to regulatory restrictions on their overall assets and investments.
In February 2022, SEBI temporarily halted foreign stock investments by domestic mutual funds to prevent them from exceeding the RBI’s $7-billion industry-wide investment ceiling. This limit was established to control foreign currency outflows from India and maintain balance of payments stability. The RBI also imposed fund-wise limits of $1 billion on overseas investments and $1 billion on overseas exchange-traded fund (ETF) investments for fund houses. SEBI later allowed mutual funds to resume foreign stock investments as long as they stayed within these thresholds.
Consequently, international funds operating in India are not available on tap. They occasionally open subscriptions when redemptions or market declines create room to accept subscriptions. They shut when the limits are breached.
New subscriptions
For investors keen to invest internationally, 30 of the 74 international mutual fund schemes accept new subscriptions, currently. Among these, six are ETFs, available in secondary markets. However, due to increased investor interest and the absence of market makers, these overseas ETFs have been trading at significant premiums to their Net Asset Value (NAV). Hence, investors should avoid purchasing these ETFs from the secondary market for now.
There are other international funds accepting fresh lump-sum investments and SIPs, while also permitting switch-out transactions and systematic transfer plan (STP) instalments. The accompanying table shows international schemes open for fresh subscriptions as of March 21. It’s important to note that fund houses may suspend new investments when they reach their regulatory limits.
Allocation to the overseas markets can be anything from 10 per cent to 20 per cent of your long-term portfolio. However, you should have asset allocation in place, based on your financial goals and risk profile.