Contents
Definition
An international fund (also called an overseas fund or foreign fund) is a mutual fund scheme categorised by SEBI under its October 2017 Categorisation and Rationalisation Circular as investing primarily in overseas equities. SEBI requires that at least 80% of total assets be deployed in foreign stocks or overseas ETFs. These funds are domiciled in India, regulated by SEBI, and available to all Indian residents and NRIs through regular mutual fund channels. They allow Indian investors to access foreign markets without directly navigating LRS remittances, foreign brokerage accounts, or foreign currency settlement — the fund handles the currency conversion and foreign custody internally. Examples include Parag Parikh Flexi Cap Fund (partial overseas exposure within flexi-cap category) and dedicated overseas funds such as Franklin India Feeder – Franklin U.S. Opportunities Fund.
How an Indian investor accesses this
Accessible through any AMFI-registered distributor (ARN holder), online MF platforms, or direct plans on the AMC website. No LRS paperwork is required — the investor purchases units in INR; the fund remits to its overseas custodian within its SEBI-approved overseas investment limit. Important operational constraint: SEBI and AMFI have imposed a cumulative industry-wide overseas investment cap of USD 7 billion for equity (plus USD 1 billion for overseas ETFs). AMCs periodically pause fresh subscriptions in international fund schemes when the industry cap is approached — investors should check AMC notices before investing. Minimum investment: same as domestic funds, typically ₹500 per SIP instalment or ₹1,000 lump sum. Existing investments continue to compound even when new subscriptions are paused.
Tax treatment
Post Finance Act 2023 and §50AA of the IT Act (effective 1 April 2024): gains on international fund units are taxed at the investor's applicable income tax slab rate regardless of holding period — no indexation benefit, no 20% LTCG rate. This was a significant change from the pre-2023 treatment where long-term gains (≥36 months) attracted 20% with indexation. Dividends from international funds are added to income and taxed at slab. The §50AA treatment applies only to "specified mutual fund" units, broadly defined as funds with less than 65% domestic equity — most international funds qualify.
Currency consideration
The fund's NAV in rupees reflects both the movement of underlying foreign stocks and the INR-foreign currency exchange rate. Most Indian international funds are unhedged — NAV rises when INR depreciates and falls when INR appreciates (relative to the fund's target currency). Some funds offer separate hedged plan options. The academic case for international diversification rests on low correlation between Indian equities and developed-market equities, particularly during India-specific slowdowns.
Worked example
An investor puts ₹2 lakh into an international fund (100% US equity) in January 2023 at NAV ₹50/unit (4,000 units). By January 2026, the underlying US index rises 40% in USD and INR depreciates 9% (₹83→₹91). New USD NAV = ₹50 × 1.40 = USD equivalent; in INR: ₹50 × 1.40 × 1.09 ≈ ₹76.3/unit. Exit value = 4,000 × ₹76.3 = ₹3,05,200. Gain = ₹1,05,200 — taxed at slab (§50AA), not at 20% LTCG, so at 30% slab: ₹31,560 tax. Net gain after tax: ₹73,640 (vs. ₹74,640 under the old 20% rate — modest difference at this scale but matters on larger amounts).
See also
- Fund of Funds (FoF)
- Country Fund
- Currency Hedging
- NRI Investing — Complete Guide
- US Stocks for Indian Investors
Primary source
SEBI Circular CIR/IMD/DF3/83/2017 — Categorisation and Rationalisation of Mutual Fund Schemes (October 2017): sebi.gov.in. AMFI — Overseas Investment Limit notices (periodic): amfiindia.com. Finance Act 2023 §50AA (international fund taxation): incometax.gov.in. This content is educational and not investment advice. MintByte is SEBI-registered (ARN-314872, APMI APRN-01658).