Can Indian investors buy international mutual funds?

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Numerous mutual fund companies in India provide Indian investors with foreign mutual funds. However, mutual funds companies are only permitted to invest a total of $7 billion in international securities and funds, with an additional $1 billion allowed for international Exchange-Traded Funds (ETFs). This is a combined industry-level limit.

On February 1, 2022, the Securities and Exchange Board of India (SEBI) advised fund houses to suspend investments in overseas stocks as the $7 billion total limit of overseas investments by fund houses was about to be hit.

Because the funds were suspended, it impacted the new inflow of investment in international mutual funds. This left fund houses with two options – waitfor foreign investments to start or lose recognition as an international fund. Luckily, the global market volatility and macroeconomic instability came to a surprising rescue.

Can Indian investors buy international mutual funds now?

Yes, as of today, you can invest in international mutual funds and ETFs offered by Indian mutual fund houses. That’s because by mid-2022 the value of international stocks plunged due to the significant fall in the global markets. This led to a drop in the total investment value of international investments made by fund houses in India. Thus, with small modifications, SEBI allowed mutual fund houses to restart their foreign investments again.

Mutual fund houses are now allowed to continue making international investments without breaching the overseas investment limit as of February 1, 2022. Hence, you can look at the mutual fund houses that still have the headroom available without breaching the limit and are offering international mutual fund schemes in 2023.

Also, according to new regulations for investing in international funds, individual mutual fund investors are required to disclose nominee(s) for all new folios launched as of October 1, 2022, or explicitly state that they do not want to declare a nominee through an opt-out process. They also need to ensure that contact details such as phone number and email ID are updated in their fund folios.

Things to consider before investing in international mutual funds

Experts recommend that your portfolio’s international exposure should be between 5% and 15% depending on your risk tolerance and financial goals. Hence, you should consider what the ideal exposure limit will be for you.
You should understand the country-specific and currency fluctuation related risks that can impact your international mutual fund investments.
Different geographical regions, such as North America, Asia Pacific, Eurozone, etc., have different opportunities and different risks. You should understand what kind of geographical diversification will be the most beneficial to your current portfolio.
Ideally, when investing in international securities, you should look at investing in countries that have a low correlation with Indian markets. This helps hedge market risks as losses from one country’s market will be hedged by the other.

Conclusion

Investments in foreign markets through international mutual funds are simple to make and offer risk-adjusted returns. To spread your portfolio’s risk, you should put your money into well-diversified international funds after careful research and consideration.