With dedicated international funds often restricted, many domestic Indian schemes are now allocating up to 27% of their portfolios to global equities. This strategy provides investors with geographic diversification, though it often comes through thematic funds rather than broad-based global index funds. Investors should focus on the underlying portfolio strategy rather than just the foreign allocation percentage.
For Indian investors looking to diversify their portfolios beyond the domestic market, the path has become more complex. With regulatory limits on overseas investments pausing fresh entries into many dedicated international mutual funds, a new trend has emerged. Several domestic mutual fund schemes are increasingly incorporating foreign equities into their portfolios, providing a way to access global markets without needing a dedicated international fund.
Global Exposure Through Domestic Schemes
Recent data from June 2026 indicates that this strategy is gaining traction. As of that period, 15 domestic schemes held more than 10% of their assets in foreign stocks. The trend is particularly visible in technology and multi-asset funds, which use global holdings to capture specific market opportunities. For instance, the Edelweiss Technology Fund reported an allocation of 26.8% in overseas equities, while the ICICI Prudential Passive Multi-Asset FoF maintained a 26.6% exposure. Other funds, including the Franklin India Technology fund, also show notable international components at approximately 20.5%.
This shift allows investors to gain exposure to global tech giants and international companies within the structure of an Indian mutual fund. For example, funds like Kotak Pioneer, DSP Healthcare, and Axis Innovation have also integrated international holdings ranging from 14% to nearly 19%. Even some diversified equity funds, such as the SBI Children's Investment Plan and the Parag Parikh Flexi Cap Fund, have included international stocks to add a layer of global geographic spread.
Why This Matters for Investors
This workaround is largely a result of industry-wide regulatory ceilings on overseas investments, which have limited the ability of fund houses to accept new money into pure international funds. While some fund houses have selectively reopened certain overseas schemes for limited transactions, the access remains restricted for most investors. Consequently, these domestic-focused schemes are currently the primary available route for many to include global assets in their portfolios.
However, it is important to note that this global exposure is often concentrated in specific themes. Many of these funds are either technology-focused or thematic, meaning their foreign holdings are usually limited to specific sectors rather than a broad index of global companies. As a result, the performance of these funds is tied heavily to the specific sector they track, in addition to the global equity markets.
Risks to Consider
Investors should be aware of the inherent risks when relying on these funds for global exposure. First, there is the concentration risk; since these funds often focus on technology or specific themes, they do not provide the broad-based global diversification that a global index fund would. If the chosen sector experiences a downturn, the foreign holdings may not be enough to shield the portfolio from losses.
Second, foreign equity investments are subject to currency fluctuations. If the Indian Rupee strengthens against the foreign currency, the returns from those investments could be lower than expected in rupee terms. Third, there is operational uncertainty. The ability of these domestic funds to maintain or increase their foreign exposure depends on the fund house’s remaining headroom under regulatory limits. If a fund hits its overseas investment limit, it may have to stop increasing its foreign allocation, or even divest, which could change the fund's strategy.
Before selecting a fund based on its foreign allocation, it is essential to evaluate the overall investment strategy, the track record of the management, and the cost structure of the fund. Investors should treat these foreign holdings as a secondary feature rather than the primary reason for investment, ensuring that the fund’s overall objectives still align with their personal financial goals.