Mutual Fund Overseas Schemes See ₹1,660 Crore Inflow as Investors Eye US Markets
Indian investors are increasingly turning to overseas mutual fund (MF) schemes, particularly those focused on US markets, as domestic equities deliver modest returns. The September quarter of 2025 witnessed ₹1,660 crore inflows into Fund of Funds (FoF) investing abroad, reversing the ₹305 crore outflow recorded in the June quarter, indicating a renewed appetite for high-risk, high-return investment avenues.
The trend reflects growing confidence among high net worth investors (HNIs), who added 1.08 lakh folios during the quarter, signaling a shift toward global diversification strategies amid lacklustre domestic equity performance.
Surge in Fund of Funds Investments
Fund of Funds investing in overseas markets had recorded modest inflows of ₹87 crore in the March quarter and net outflows of ₹59 crore in December, underscoring the volatility of investor sentiment.
According to market analysts, the sharp rally in US equities has been a key driver. Nasdaq, for instance, surged 35% in six months, while the S&P 500 and Dow Jones indices rose 24% and 18%, respectively. In comparison, Indian indices such as Sensex and Nifty posted only 6% gains in the same period, prompting investors to explore international opportunities.
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Regulatory Evolution and MF Participation
Three years ago, SEBI had restricted mutual fund investments in overseas markets as the industry approached the $7 billion overall cap, including $1 billion for passive funds. Subsequent easing of restrictions allowed fresh inflows, with funds required to adhere strictly to prescribed limits, providing Indian investors a structured gateway to overseas equities.
US Economic Factors Driving Investor Confidence
Despite global concerns over inflation and labour market weaknesses, the US stock markets have rallied, supported by policy measures and fiscal incentives. US tariffs on imports have risen from 2% to over 10%, generating $192 billion in revenue, while the One Big Beautiful Bill Act provided corporate tax relief and expanded standard deductions, bolstering investor sentiment.
Sunil Subramaniam, Director of Sense and Simplicity, an independent think tank, noted:
“US markets have performed exceptionally well despite tariff pressures, supported by incentives for corporates and taxpayers, and expectations of another rate cut by the US Federal Reserve.”
For Indian investors, rupee depreciation against the dollar over the past year has further enhanced returns, adding approximately 5% to gains on overseas MF investments.
Risk and Reward Dynamics for Indian Investors
While the US markets have been lucrative, experts caution that they remain highly sensitive to global developments. Rapid market adjustments in response to geopolitical events, economic policy shifts, or Fed actions can impact returns.
“Overseas markets are more nimble and may react quickly to adverse developments. Investors should carefully evaluate the risk-reward profile before making decisions,” Subramaniam added.
Investors are advised to adopt diversified approaches, considering both currency fluctuations and market volatility, while leveraging Fund of Funds structures to mitigate risks associated with direct equity investments abroad.
Outlook: Overseas MF Schemes as a Strategic Avenue
The buoyant performance of US markets, coupled with tax incentives and currency depreciation, makes overseas mutual funds an attractive alternative for investors seeking higher returns. Analysts anticipate continued inflows into FoFs, especially from HNIs, as domestic equities show slower growth and investors look for geographical diversification.
In this context, overseas MF schemes not only provide exposure to global equities but also serve as a hedge against domestic market volatility. Investors are expected to remain selective, balancing long-term growth prospects with near-term market risks.
Key Takeaways for Investors
₹1,660 crore inflows into overseas MF schemes in September quarter.
US equity indices outperform Indian indices: Nasdaq +35%, S&P 500 +24%, Dow Jones +18%, Sensex/Nifty +6%.
High net worth investors drive demand for overseas Fund of Funds.
Rupee depreciation adds 5% gains for Indian investors.
Caution advised due to potential volatility and global macro risks.
The growing interest in overseas mutual funds underscores a significant shift in investment strategy among Indian investors, seeking higher returns and portfolio diversification. With continued US market buoyancy and favorable policy environment, FoFs are expected to remain a preferred vehicle for global exposure in the near term.
