US, China rally reignites investor interest in international mutual funds

Net inflows, account additions highest at a multi-month high in August

Investor interest in overseas mutual fund (MF) schemes is reviving, driven by their widening near-term outperformance over domestic funds. In August, these schemes garnered net inflows of Rs 500 crore, the highest since October 2021. The net new account additions at 25,500 are also the highest in 19 months.

 

The strong inflows come despite most schemes being closed for subscription owing to the unavailability of regulatory headroom for overseas investments.

 

Most international schemes offered by fund houses in India invest in US and Chinese equities, both of which have rallied significantly over the past year. This rally, coupled with the rupee’s depreciation, has led to a sharp outperformance of international funds compared to domestic offerings. 

Schemes like Mirae Asset Hang Seng Tech ETF, DSP World Gold Mining Overseas Equity Omni FoF, Mirae Asset NYSE FANG+ ETF and Invesco India–Invesco Global Consumer Trends FoF have generated over 70 per cent return in the one-year period, shows data from Value Research. The recent rally has also boosted their 3-year performance. Four of the top five equity schemes in the 3-year period are now international funds.

 

Over the past year, domestic equity fund performance has remained largely muted, with stock prices correcting in the first half before staging a recovery.

 

Experts say the comparative performance highlights the need for global diversification.

 

“The benefits of being geographically diversified through investing in international funds have been demonstrated at multiple points, including in the recent past where the relatively higher tariffs on India compared to most other geographies, and the weakness in the Indian rupee vis-à-vis the US dollar, have helped them outperform Indian equities,” said Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors. 

“However, investors need to be mindful that valuations in many international markets are at a premium to long-term averages, and thus need to be looked at from a longer-term perspective. A combination of domestic and international funds works well to manage risk and meet goals like international education for children and travel, in our experience,” he added.

 

Investors have three routes for international exposure. Apart from the MF channel, there are investment avenues through the Gujarat International Finance Tec-City (GIFT City) and a few investment platforms that allow direct equity investments in the US and other markets.

 

The international investment pick-up is also visible in funds that operate through GIFT City.

 

As of June, investments into foreign jurisdictions stood at $1.43 billion, up nearly 70 per cent from $842 million at the end of March. Meanwhile, PMS assets operating out of GIFT City climbed 23 per cent to $1.46 billion during the April–June quarter, up from $1.18 billion at the end of March 2025.

 

This route is mostly used by high-net-worth individuals (HNIs) and family offices.