Despite India's strong economic growth forecast, its equity markets have underperformed, prompting investors to consider global diversification. Investing in international markets offers access to diverse sectors and mitigates country-specific risks. Investors can choose amidst options like international funds, direct investment through LRS, and GIFT City. Tax reforms and Double Tax Avoidance Agreements further enhance the appeal of global investing.
iStockConcerns over US tariffs and heavy FPI outflows have contributed heavily to the volatility in domestic equities.
The Reserve Bank of India (RBI) expects the economy to report a healthy real GDP growth of 6.5% year-on-year in 2025–26, supported by strong government capital expenditure, a favourable monsoon, falling interest rates, and a likely uptick in consumption. Additionally, macroeconomic tailwinds such as receding inflation and benign crude oil prices are expected to aid growth.
Despite these positives, Indian equity markets have significantly underperformed in 2025 so far. While the MSCI India Index delivered a marginal -0.03% return, the MSCI Emerging Markets Index and the MSCI World Index posted impressive gains of 18.9% and 13.6%, respectively (in INR terms, from 1 January to 8 August).
Indian mutual fund schemes that are currently accepting investments
Factors such as stretched valuations, concerns over tariffs, strong foreign portfolio investor (FPI) outflows, and headwinds in export-driven sectors have contributed to the volatility in domestic equities.
While diversification across domestic sectors can help manage volatility, a smarter approach to improving portfolio returns is global diversification—spreading investments across different countries and regions rather than concentrating them solely in India.
The equity markets of the United States, United Kingdom, Germany, Japan, Singapore, and Hong Kong remain the most liquid and accessible markets to Indian investors. While some can be tapped through mutual funds or exchange-traded funds (ETFs), others can only be explored through stockbrokers under the RBI’s LRS (Liberalised Remittance Scheme).
Benefits of global diversification
Investments in global markets help investors access developed markets with stable returns and emerging markets with strong growth potential. Moreover, global diversification provides exposure to broader sectors, for example, technology in the US, luxury goods in European markets, and manufacturing in Asia. Furthermore, country-specific risks (such as political, regulatory, and economic slowdown) can be mitigated through global investing. It also helps offset regional volatility.
Subho Moulik, Founder & CEO of Appreciate, a fintech company registered with the Securities and Exchange Board of India (Sebi) and International Financial Services Centres Authority (IFSCA), says that the India-US correlation has declined to 0.4-0.5 from historical levels of 0.6-0.7, providing genuine diversification benefits. During market stress periods, this divergence becomes pronounced and helps reduce regional turbulence.
Additionally, rupee depreciation is a critical component that enhances returns from foreign investments. When an investor invests in global equities (say, US stocks), the returns are in USD. If the rupee weakens, each invested dollar converts into more rupees, which improves the returns.
Risks involved
While there are benefits, investors also must consider the challenges involved. Geopolitical developments, trade wars, restrictions on foreign investments, rupee appreciation, taxation complexity, and higher costs are some of the key risks involved. Moreover, a lack of understanding of foreign markets as well as sector fundamentals can affect investment decisions.
Manish Goel, Founder and MD of Equentis Wealth Advisory Services, says that the portfolio performance can be affected if there are policy changes and sanctions on certain economies. He suggests global market exposure to certain countries to minimise the risks involved.
How to invest?
There are multiple ways to get exposure to global markets. The investments can be routed through:
International funds: India-domiciled mutual funds that invest in global equities or overseas funds are a good option for gaining exposure to global equities. Global ETFs listed on the BSE or National Stock Exchange (NSE), which track global indices, offer an alternative as well.
However, the breach of the $7 billion industry cap—in 2021, Sebi allowed mutual funds to make overseas investments up to $1 billion per fund house with an overall industry limit of $7 billion—has badly hit fresh investments into such funds.
“The industry limit has been almost fully utilised as of March 2024, with the latest status requiring verification from Sebi. This has forced multiple asset management companies (AMCs) to halt fresh investments in international funds,” adds Moulik.
Due to constrained investments, the prospective investors should verify availability directly with the fund houses. Some funds that are currently accepting investments are listed here.
Indian mutual funds with exposure to global equities: Certain Indian funds maintain a slight exposure to global equities and provide the easiest way to gain exposure to global markets. However, the global exposure in such funds is not very significant and can only act as an add-on.
On a portfolio level, it may not provide adequate diversification. Moreover, such exposure is dependent on the fund manager’s discretion. These are the top 5 funds with the biggest exposure to overseas equities (including overseas mutual fund units).
Top 5 Indian mutual funds with the largest overseas equity exposure
Direct investment through LRS: This route is becoming increasingly attractive due to enhanced platform accessibility and automated compliance features. The LRS allows resident individuals to send up to $250,000 per financial year abroad for permitted purposes that include overseas education, travel, and investments in foreign stocks and mutual funds.
“The LRS enables investment in overseas stocks, ETFs, and other securities via global brokerage accounts. In select cases, exposure is also possible through American or global depositary receipts (ADRs/GDRs) of foreign companies,” adds Goel.
There are several Indian fintech platforms (like Vested Finance, INDmoney, Appreciate, and Groww) and Indian brokers where investors can open accounts for investing through LRS. An account can also be opened with foreign brokers.
To open an account, an investor needs to submit their PAN card, Aadhaar card, bank statements, or address proof. Along with these, the Foreign Account Tax Compliance Act (FATCA) is mandatory.
The second step is to link their bank account and facilitate the LRS by submitting Form A2 (an RBI-prescribed form that the bank requires an investor to fill for remittance) and a self-declaration for LRS to the bank. Indian residents must report foreign income or holding of foreign assets in ITR-2 while filing their income tax returns.
GIFT City: Located in Gujarat, it enables investors to access global stocks and ETFs through Indian brokers. Lower compliance requirements (no LRS paperwork), faster settlement, lower transaction costs, and tax efficiency (there are no transaction taxes, which include securities transaction tax and commodity transaction tax) are some of the key advantages of investing through GIFT City.
When comparing avenues for investing overseas, investors looking for wider global access should opt for LRS, whereas those seeking simplicity can consider GIFT City as and when opportunities open up.
Tax implications
Budget 2024-25 introduced favourable tax reforms, with long-term capital gains (LTCG) rates reduced from 20% to 12.5% for foreign stocks held beyond 24 months.
While indexation benefits were eliminated, the lower rate structure generally benefits most investors, particularly in inflationary environments. Overseas funds are also now taxed favourably.
Short-term capital gains continue being taxed at applicable income tax slab rates, creating incentives for longer holding periods. Moreover, Double Tax Avoidance Agreements (DTAAs) signed with various countries play a crucial role in global investing. These ensure that taxpayers are not taxed twice on the same income (dividends, capital gains). If such income is taxed in the foreign country, the investor can claim credit and reduce tax liability in India.
India has DTAAs with over 90 countries, including the US, UK, Singapore, and Canada.
US dividend income faces 25% withholding under DTAA provisions, which can be claimed as a foreign tax credit through Form 67 to avoid double taxation. European dividends typically face higher withholding rates, though DTAA benefits vary by country and investment structure, explains Moulik.
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