International Mutual Funds: Investing in US Tech from India

The dominance of American technology companies in global markets over the past two decades has been one of the most significant wealth creation events in financial history. Companies that were startups in the 1990s became the most valuable enterprises on earth — and investors who held them through the compounding cycle accumulated extraordinary returns. For Indian investors watching this from the outside, the natural question became whether there was a route to participate in this growth without opening a foreign brokerage account or navigating complex international banking arrangements.

International mutual funds — and specifically US technology-focused funds — answered that question. They remain one of the most accessible ways for Indian investors to build meaningful global diversification into a portfolio that would otherwise be entirely dependent on the Indian economy’s performance.

How International Mutual Funds Work

International mutual funds are Indian-domiciled mutual fund schemes that invest in securities listed on foreign stock exchanges. The fund is denominated in Indian rupees — you invest rupees and receive rupees on redemption — but the underlying portfolio consists of foreign equities. The fund house manages the currency conversion, regulatory compliance, and foreign investment limits on your behalf.

For US technology exposure specifically, several structures exist. Fund of Funds schemes invest in a single underlying US-based fund — typically a well-known ETF like one tracking the Nasdaq 100 or a specific technology index. Direct international funds build their own portfolios of US-listed technology companies. Both approaches give Indian investors economic exposure to companies like Apple, Microsoft, NVIDIA, Alphabet, Amazon, and Meta without requiring a direct foreign investment account.

The Currency Return Component

Investing in US-focused international funds gives you two return components simultaneously. The first is the equity return of the underlying US portfolio. The second is the currency return — the impact of the rupee-dollar exchange rate movement on your investment’s value in rupee terms.

Historically, the Indian rupee has depreciated against the US dollar at approximately 3% to 5% per year over long periods. This depreciation adds a tailwind to the rupee-denominated returns of US funds — a US fund that returned 12% in dollar terms might deliver 15% to 17% in rupee terms if the rupee weakened during the same period. This currency tailwind is not guaranteed and can reverse in periods of rupee strength, but it has historically been a net positive for long-term holders of international funds.

The SEBI Overseas Investment Limit

International funds have faced a meaningful operational constraint since early 2022. SEBI placed a pause on fresh investments in overseas mutual funds after the aggregate industry-wide limit on overseas investments — set by the RBI — was approached. This limit has been partially restored for several fund houses, but investors should verify the current investment availability status of specific international funds before initiating a new SIP or lump sum. Some funds continue to accept investments while others remain temporarily closed to new subscriptions.

Taxation of International Funds

International funds — including US technology-focused funds — are classified as non-equity funds for Indian income tax purposes, since they invest in overseas securities rather than domestic equities. All capital gains are taxed at the investor’s applicable income slab rate regardless of the holding period. This is less favourable than equity fund taxation and is an important consideration when evaluating the net-of-tax return of international funds relative to domestic equity alternatives.

Frequently Asked Questions (FAQs)

Q1. Can I invest in Nasdaq 100 directly from India through mutual funds?

A: Yes. Several Indian fund houses offer fund of funds schemes that track the Nasdaq 100 index — investing in a US-listed Nasdaq 100 ETF as the underlying asset. These are available as direct plan mutual funds accessible through broker platforms and AMC websites, subject to the current investment availability status based on the overseas investment limit position.

Q2. How much of my portfolio should I allocate to international funds?

A: Most financial advisors recommend international allocation of 10% to 20% of an equity portfolio for Indian investors — sufficient to provide meaningful diversification without creating excessive currency or foreign market concentration. The right percentage depends on your existing exposure to global businesses through Indian companies and your specific investment thesis.

Q3. Are US technology stocks currently overvalued?

A: Valuation assessment for any market requires ongoing analysis beyond what any article can definitively answer. US technology valuations are significantly above their historical averages on price-to-earnings metrics but are often defended by the extraordinary earnings growth and cash generation of the largest companies. Running a systematic SIP into international funds rather than a single large lump sum reduces the risk of concentrated entry at peak valuations.

Q4. Do international funds protect against Indian economic slowdowns?

A: Partial protection is the honest answer. In periods where the Indian economy and currency weaken simultaneously while the US economy performs well, international funds provide genuine portfolio diversification benefit. However, in global risk-off events — where all markets fall together — the correlation between Indian and US equity markets increases and diversification benefit reduces. International funds provide diversification against India-specific risks more reliably than against global systemic risks.

Q5. Is direct stock investing in the US through the Liberalised Remittance Scheme better than international mutual funds?

A: LRS allows up to USD 250,000 per year of direct foreign investment for Indian residents. Direct US stock investing through LRS offers more flexibility and control — you choose specific companies without fund management fees. International mutual funds offer convenience, professional management, and rupee-denominated operation without foreign account management. For investors with large international allocations and the knowledge to manage direct portfolios, LRS may be more efficient. For most retail investors, international mutual funds provide superior access with lower complexity.