28% Returns, But the Door Is Locked

International mutual funds have become the best-performing mutual fund category in India over the past year, delivering an average return of 28.28% and comfortably outpacing domestic equity funds in both the one-year and nine-month periods. The rally, powered by a global technology and artificial intelligence boom, has delivered gains of more than 50% in markets like Taiwan, South Korea and Japan.

Yet Indian investors who want to add overseas exposure are hitting a wall. Fund houses stopped accepting fresh investments into international schemes after the industry-wide limit set by the Securities and Exchange Board of India (SEBI) was exhausted in February 2022. Most major AMCs have since suspended both lump-sum investments and systematic investment plans (SIPs) in these funds, leaving many savers unsure how to build a global portfolio.

The suspension has prompted a search for workable alternatives. Financial planners point to three structural routes: using the Liberalised Remittance Scheme (LRS) to invest directly in overseas stocks and ETFs, buying domestically listed ETFs that track international indices, and subscribing to outbound funds based in Gujarat International Finance Tec-City (GIFT City), India’s financial hub that permits external investment without breaching SEBI’s mutual fund cap.

The AI-Fuelled Rally and the Alternatives That Still Work

The extraordinary returns have two main engines. Global equities, particularly semiconductor, memory chip and data centre companies, have rallied sharply as spending on artificial intelligence accelerates. Vishal Dhawan, Founder & CEO of Plan Ahead Wealth Advisors, notes that the continued depreciation of the Indian rupee against major currencies added a further tailwind: returns converted back into rupees got an extra lift from currency gains.

What the Gains Mask

Manish Kothari, Co-founder & CEO of ZFunds, cautions that the rally has been heavily concentrated. The headline numbers are dominated by a handful of stocks in a few markets, and investors who chased thematic or country-specific products—Taiwan or Korea funds, for instance—now hold a high-conviction bet rather than a diversified allocation. The Nippon India Taiwan Equity Fund returned 118% in one year, but that same concentration risk works both ways.

The GIFT City Bridge

Among the alternatives, GIFT City outbound funds are emerging as the most practical option for resident Indians while the mutual fund route stays blocked. These funds can invest across developed and emerging markets and do not count against the SEBI overseas limit for mutual funds. Kothari recommends they be used as a starting point for new international money, especially through diversified products tracking the MSCI World Index or MSCI Emerging Markets Index, which dilute the concentration risk present in single-country strategies.

Why Timing the Reopening Is a Trap

Both advisers argue against waiting for the SEBI cap to be lifted or for a global correction. The reopening of mutual fund subscriptions is a regulatory event, not a buy signal, Dhawan says. Kothari adds that international allocation should be treated like domestic equity—built through a mix of lump sums and regular plans based on relative attractiveness, not market timing. Sitting in cash until the regulatory window reopens risks missing the very period of compounding that makes diversification worth holding.

Your Next Steps: Building Global Exposure Without Mutual Fund SIPs

While fresh SIPs into international mutual funds remain paused, investors can take several concrete steps today, based on the advice of the experts cited:

  • Start building global exposure through GIFT City funds. These are currently the most straightforward vehicle for new money, and diversified ETFs tracking the MSCI World or MSCI Emerging Markets indices reduce the single-country risk that has already made Taiwan and Korea funds volatile.
  • If you already hold international funds, rebalance where necessary. If the rally has pushed your overseas allocation above a target of 10–15% of your total portfolio, trim the overweight portion and redirect it to underweight assets, rather than simply holding on because returns have been strong.
  • Park money you plan to invest later in liquid instruments. For those who prefer the mutual fund structure, keep the intended international SIP amount in a domestic liquid fund or short-term debt instrument, so that it is ready when SEBI revises the cap and fund houses reopen subscriptions.
  • Explore LRS-based platforms for direct stock and ETF access. Resident individuals can use the Reserve Bank of India’s Liberalised Remittance Scheme to open global trading accounts and buy international ETFs directly, though this route requires handling tax and repatriation documentation independently.
  • Stick to regular investment plans once the window reopens. When international mutual fund subscriptions resume, begin with SIPs or systematic transfer plans to average purchase costs, rather than deploying a lump sum as an immediate catch-up.