International equity funds — Nasdaq, S&P 500, global exposure

International equity funds — most commonly structured as Fund-of-Funds (FoFs) investing in foreign-domiciled mutual funds — give Indian retail investors access to global equity markets in INR. The category provides diversification across currencies, markets, and sectors not deeply represented in India. The tax treatment changed substantially with Finance Act 2024 amendments; the category remains useful but with reduced tax efficiency vs domestic equity.

Categories of international exposure

US large-cap indices

• Nasdaq 100 funds: tech-heavy, ~100 largest non-financial stocks listed on Nasdaq.
• S&P 500 funds: 500 largest US companies across all sectors.
• US Total Market funds: broader exposure including small/mid-caps.

Sector / thematic international

• Global Technology.
• Global Innovation.
• Global Healthcare.
• Global Consumer.

Country-specific

• China-focused.
• Japan-focused.
• Single-country specialty funds.

Regional and global

• Emerging markets ex-India.
• Developed markets (US + Europe + Japan).
• Global diversified.

Tax treatment

International funds are classified as non-equity in India because the underlying portfolio is foreign equity, not domestic.

For units bought before 1 April 2023

Previous regime: 20% LTCG with indexation above 36 months, slab STCG below.

For units bought 1 April 2023 to 31 March 2025

Finance Act 2023 regime: slab rate, regardless of holding period.

For units bought on or after 1 April 2025

Finance Act 2024 amendments: 12.5% LTCG without indexation above 24 months; slab STCG below.

The 12.5% rate matches equity LTCG, but the longer 24-month holding period and absence of ₹1.25 lakh exemption make it slightly less favourable than domestic equity.

Schedule FA disclosure question

International FoFs are Indian-domiciled mutual funds. They are NOT reported in Schedule FA of ITR-2. The fund's underlying foreign investments are the AMC's assets, not the investor's. This is a critical distinction from direct foreign equity holdings (which DO require Schedule FA disclosure).

Currency diversification benefit

USD/INR has appreciated steadily over the past 20 years (~3-4% per year). Investments in USD-denominated assets benefit from this trend in INR terms even before underlying USD returns.

However, currency can also move the other way over shorter periods. The 5-year currency contribution to international fund returns averages 3-5% but with significant year-to-year variability.

Why diversify internationally

Sector exposure unavailable in India

Mega-cap technology (Apple, Microsoft, Google, Nvidia), large-scale industrial, certain healthcare and consumer brands have no direct Indian equivalent.

Risk reduction

India-specific risks (rupee depreciation, regulatory changes, demonetization-style events) don't affect foreign portfolios. The diversification benefits historical risk-adjusted returns.

Access to global innovation

US tech and biotech, European luxury, Asian consumer trends.

Currency hedge for foreign liabilities

Future foreign education / travel / immigration plans benefit from USD-denominated assets.

Why limit international exposure

Currency risk runs both ways

The long-term USD/INR depreciation is a trend, not a guarantee. Periods of INR strength reduce international returns.

Tax less favourable

Post-2025: 12.5% above 24 months. Domestic equity: 12.5% above 12 months with ₹1.25 lakh exemption. Domestic is more tax-efficient.

SEBI restrictions on flows

SEBI periodically caps overseas investment limits for the mutual fund industry. International funds have been periodically restricted from accepting fresh inflows. Plan around this uncertainty.

Settlement timing

International FoFs settle T+3 or longer. SIP allotment can lag the registered date by 7-15 days. This can affect timing-sensitive uses.

Performance history

10-year CAGR for major international categories (in INR, including currency):

• Nasdaq 100: 14-18%.
• S&P 500: 12-15%.
• Global Technology: similar to Nasdaq.
• China / EM: more variable.

Returns have been generally strong; tax treatment will determine post-tax outcomes going forward.

Position sizing

For most Indian portfolios:

• 5-15% of equity allocation as international diversification.
• Higher (15-25%) for investors with foreign liabilities or strong international conviction.
• Lower (5%) for purely domestic-focused investors.

The SIP availability question

International FoFs are SIP-friendly when AMCs are accepting inflows. During SEBI's periodic restrictions, fresh SIPs may be paused. Have a domestic alternative ready for the SIP amount during restriction periods.

Expense ratios

International FoFs have layered expenses:

• Underlying foreign fund TER: 0.05-0.50%.
• Indian FoF TER: 0.50-1.20%.
• Total: 0.55-1.70%.

The layering makes international FoFs more expensive than equivalent domestic equity index funds.

Comparison to direct international equity

How to evaluate

• Track record of the underlying foreign fund.
• Track record of the Indian FoF in tracking the underlying.
• TER (lower is better).
• Liquidity and current SEBI restriction status.
• Currency hedging policy (most are unhedged).

Allocation strategy

A practical approach for diversified Indian portfolios:

• Core: 80-90% Indian equity.
• International: 10-20% across US large-cap (S&P 500 / Nasdaq) and possibly EM ex-India.
• Rebalance annually to maintain target allocation.

The future of international funds

The SEBI restrictions on overseas investment limits create periodic uncertainty. As the limit framework evolves, the long-term availability of international fund access may improve. The category is structurally useful for diversified portfolios despite the operational frictions.