In times when traditional investment avenues aren't offering attractive real returns (i.e., inflation-adjusted returns), investors are exploring more options for wealth creation. Among them, mutual funds have become a popular and acceptable avenue. Investors are not just limiting their exposure to domestic mutual funds but also considering international mutual funds to benefit from geographical diversification. This is notwithstanding the fact that India remains the fastest-growing major economy, with several reforms underway.
The three key reasons investors are going global are:
- To gain exposure to global companies and themes – There are several leading companies in artificial intelligence (AI) & robotics, semiconductors, cloud services, cybersecurity, renewable energy, electric mobility, e-commerce, fintech, digital infrastructure, biotechnology, and a host of others, which are in their early stage of life cycle that investors don't want to miss out on.
- For currency hedging – International funds essentially hold assets in foreign currency – usually the US Dollar (USD). If the Indian rupee (INR) depreciates against the USD – as is the case now – the value of the investment increases. In other words, investors benefit from currency hedging even when equity markets move flat.
- For risk management – The global investment environment today is seeing active capital rotation and volatility. Some markets, such as Taiwan, South Korea, and China, are seeing active and positive FII participation, in addition to investing in their home countries -- the US, UK, Singapore, Canada, and others. India, on the other hand, is witnessing capital outflow with FIIs currently net sellers. Smart investors are chasing such markets to manage risk and where they perceive better wealth-creation prospects.
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The Indian equity market (Nifty 50) has lagged returns over the last 1 year and on a YTD basis, generating returns of around 14.1% and 3.9%, respectively (as of 4 May 2026). In comparison, US equities (S&P 500) and the emerging markets index (MSCI EM) have fared better, with returns of about 25.2% and 43.0%, respectively in the last one year.
In the case of US equities, the higher gains have been driven by an AI-driven tech rally and strong corporate earnings. The MSCI Emerging Market index returns are mainly because of remarkable gains in semiconductors in Taiwan and South Korea, as well as China's recovery.
International funds have delivered median returns of 46.2% in absolute terms over the last 1 year and a compounded average growth rate (CAGR) of 26.1% as of 4 May 2026.
That said, returns have varied across scheme types.
Over the last 1 year, the Nippon India Taiwan Equity Fund – which primarily invests in companies listed on the recognised stock exchanges of Taiwan, such as MPI Corporation, Chroma ATE, Winway Technology, TSMC, and Asia Vitalmponents and has overall 26 stocks in its current portfolio – has clocked handsome absolute returns of 234.7%.
Similarly, Mirae Asset Global Electric & Autonomous Vehicles Equity Passive FoF has clocked 104.9% absolute returns by investing in companies developing EVs and related technologies, components, and materials through ETFs.
Also, with global metal and energy prices having risen amidst geopolitical tensions and the AI boom – which has caused a spike in prices of copper, silver and other industrial metals – the ICICI Prudential Strategic Metal and Energy Equity FoF has fared well, delivering 92.1% in the last 1 year primarily by investing in First Trust Strategic Metal and Energy Equity UCITS ETF.
Over the last 3 years as well, Nippon India Taiwan Equity Fund has topped the returns chart with 67.3% CAGR, taking concentrated exposure to technology and industrial stocks, among others. In semiconductor manufacturing and the supply chain, Taiwan is the undisputed hub, and this fund has ridden the massive wave of AI hardware and digital transformation.
Similarly, the Mirae Asset NYSE FANG+ ETF FoF, which indirectly has exposure to today's highly rated tech giants such as Facebook (Meta), Apple, NVIDIA, Netflix, Google, Microsoft and others, has clocked an appealing 54.5% CAGR.
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Also, the Motilal Oswal Nasdaq 100 FOF, which invests in units of the Motilal Oswal Nasdaq 100 ETF, provides indirect exposure to Nasdaq 100 constituents that are not just technology companies but also leading firms from sectors such as consumer services, healthcare, and industrials, has clocked 42.2% CAGR in the last 3 years.
The Mirae Asset S&P 500 Top 50 ETF FoF, which indirectly invests in 50 US mega companies across sectors, has clocked an appealing 38.9% CAGR over the last 3 years.
There are many other international equity funds that performed remarkably well over 1- and 3-year periods. However, returns alone should not be the sole basis for investing in international equity funds. You also need to be mindful of the risks involved.
Key risks of investing in international equity funds are as follows:
- Geopolitical risk – The ongoing US-Iran war and its effects on energy prices, supply chains, inflation, and financial market volatility highlight that no market is immune, and international equities do not necessarily eliminate risk; they merely relocate it to another region. If you have high exposure to high-risk markets, it could also weigh on potential returns.
- Regulatory risk – Foreign policies, tax treaties, and tariffs are dynamic. Countries quickly respond to the continuously changing geopolitical and macroeconomic environment. The tariff tantrums of the Trump 2.0 regime and the veto over the Strait of Hormuz shown by Iran in the ongoing West Asia war are classic examples. It impacts the economy, the companies, markets, society, and your portfolio returns.
- Currency risk – While foreign investment can serve as a hedge when the INR depreciates, when the INR appreciates vis-à -vis the USD, it can affect the returns on international equity funds. For example, if the US equity fund gains 3% but the INR also strengthens by 3%, your net gain in rupee terms is zero. So, remember it's a double-edged sword.
- Concentration risk – While the US and Taiwan have delivered phenomenal returns, there has also been significant polarisation of returns over the last couple of years, primarily due to the AI-supercycle benefiting only a few technology and technology-related stocks. When the fizz in these vanishes, the returns are also likely to slow down. Never rule out the cyclicality and the reality that the fortune of an international equity fund's performance is closely linked to how the underlying companies perform. In the case of thematic equity funds, the concentration risk is often higher.
How Should Investors Approach International Funds?
International funds could be part of your satellite holdings only after the domestic equity allocation is appropriately addressed by investing in the best and most suitable funds.
Note that some of the domestic equity funds also have sizeable exposure to overseas equities as per their March 2026 portfolio -- for instance, Edelweiss Technology Fund (26.6)%, Franklin India Technology Fund (13.4%), SBI Technology Fund (13.1%), Axis Innovation Fund (12.9%), DSP Healthcare Fund (18.1%), SBI Focused Fund (12.5%), Parag Parikh Flexi Cap Fund (10.6%), etc.
Ideally, to keep risk in check, your allocation to international funds in the satellite holdings should not exceed 5-10% of your overall investment portfolio, while you consider them for tactical geographical diversification.
The decision to invest in international funds should not be based on short-term historical returns, but on a deep assessment of the risks involved and the underlying fundamentals that could deliver appealing returns over the long term.
Invest sensibly, be a thoughtful investor.
Happy investing!
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