MF investment: Indian investors are increasingly seeking opportunities in global markets to maximise their investment returns, especially around the US elections 2024. Major Wall Street indices such as Dow Jones (DJI), Nasdaq (IXIC), and the S&P 500 (GSPC) have delivered impressive returns over the past five years, attracting investors looking for lucrative investment avenues. Mutual funds, whether through systematic investment plans (SIP) or lump sum investments, offer even greater returns over the long term compared to direct equity investments.
The Securities and Exchange Board of India (Sebi) recently issued a circular allowing Indian mutual funds to invest in foreign mutual funds or unit trusts that have exposure to Indian stocks, with a cap of 25 percent of the total asset size. This move by Sebi is aimed at simplifying overseas investments for mutual funds and ensuring transparency in investment practices.
Under the new regulation, fund houses must consolidate all investments made by investors in foreign mutual funds into a single investment vehicle. This means that there should be no separate portfolios, sub-funds, or protected cells for different investors, as stated by Sebi.
Investing overseas
Moreover, the overseas mutual fund’s portfolio is widely held, with all investors having proportionate rights to gains based on their contributions. This includes “pari passu” rights, ensuring fair treatment for all investors.
In April 2022, mutual funds investing in foreign securities ceased accepting new deposits, while fund of funds (FOFs) investing in foreign stock market-listed ETFs stopped accepting new investments as of April 2024.
This decision was made due to restrictions in India, limiting mutual funds to a total investment of $7 billion in foreign stocks and $1 billion in ETFs listed abroad.
As a result, many fund houses have discontinued accepting fresh deposits into these US-focused schemes.
Funds in international category
Currently, 35 out of the 68 funds in the international category are open to new Systematic Investment Plans (SIPs) or lumpsum investments.
Here are the top 12 mutual funds
| Fund name | Region | Assets (Rs crore) |
| Motilal Oswal Nasdaq 100 FOF (Only SIP) | US | 5,138 |
| Motilal Oswal S&P 500 Index (Only SIP) | US | 3,543 |
| Franklin India Feeder Franklin US Opportunities Fund | US | 3,514 |
| Edelweiss US Technology Equity FoF | US | 2,251 |
| Edelweiss Greater China Equity Off-shore | Greater China | 1,474 |
| PGIM India Global Equity Opportunities Fund | Global | 1,352 |
| SBI International Access | US | 925 |
| Axis Global Equity Alpha FoF | Global | 821 |
| Kotak Global Innovation FoF | Global | 712 |
| Axis Global Innovation FoF | Global | 511 |
| Bandhan US Equity FoF | US | 318 |
| Invesco India-Invesco Global Consumer Trends FoF | Global | 297 |
Source: Value Research
What should investors do?
According to a report in Value Research, investing in global markets through mutual funds has been challenging for Indian investors due to regulatory restrictions. Currently, there are opportunities to invest internationally through the 35 mentioned funds, especially with China’s recent 7.5 trillion yuan stimulus package.
However, if mutual funds reach their investment limit, Indian investors can consider utilizing the Liberalised Remittance Scheme (LRS) for diversification. Under LRS, investors can allocate up to $250,000 (approximately Rs 2.1 crore) annually towards foreign assets. It is important to note that utilizing LRS may present complexities compared to mutual funds, as brokers often impose restrictions on investment types and amounts. It is recommended to approach this option with caution and be prepared to navigate additional challenges.
Earlier this year, the Reserve Bank of India broadened the remittance options available within International Financial Services Centres (IFSCs) through the Liberalised Remittance Scheme (LRS). Authorised persons were permitted to facilitate remittances for obtaining financial services or products in accordance with the International Financial Services Centres Authority Act, 2019 within IFSCs. Furthermore, current or capital account transactions overseas (excluding foreign IFSCs) can now be conducted through a foreign currency account (FCA).
Resident Indians can now invest in insurance and bank fixed deposits in foreign currency, a practice that was previously prohibited. This development is expected to benefit IFSC banks and create new opportunities for life insurance companies operating in GIFT IFSC, providing greater accessibility and flexibility for Indian residents seeking international investment prospects.