International funds deliver up to 50% returns in a year, subscriptions halted. Should investors book profits or stay invested?

International mutual funds have delivered strong returns of up to 50% over the past year—supported by rupee depreciation, a global tech/AI rally, and robust earnings growth. These sharp gains have fuelled investor interest, but at the same time, several fund houses have temporarily suspended fresh subscriptions in overseas schemes due to regulatory limits on international investments. This has left investors with a key question: Is this the right time to invest, stay invested, or book profits?

Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, shared with ETMutualFunds that the returns generated by international funds are driven by a mix of factors, mainly rally in the US market after Iran war-related correction, good earnings and sharp depreciation in rupees, and these are the factors which do not repeat every year.

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Agarwal further said that long-term investors should stay invested for the benefit of diversification and asset allocation, but if the allocation in international funds has become very large in one’s portfolio, it can be trimmed to the targeted allocation after this rally.

Echoing a similar opinion, Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that the recent 50%+ returns are largely driven by short-term factors such as the global tech/AI rally and rupee depreciation; such returns may not sustain, and investors may rebalance through partial profit booking if allocation has increased, while long-term investors can stay invested for diversification.

Out of 61 international funds, Nippon India Taiwan Equity Fund and DSP World Mining Overseas Equity Omni FoF stood out, delivering 251% and 101% returns, respectively, in the past year.

Mirae Asset Global Electric & Autonomous Vehicles Equity Passive FOF offered a return of 97.41%, and Mirae Asset Hang Seng TECH ETF FoF gave the lowest return of around 10.03% during this period.

Restriction on international funds

RBI has imposed limits on overseas investments for domestic mutual funds. This is currently capped at $7billion for the entire industry, with each asset management company allowed to invest up to $1 billion in foreign securities.

How do overseas investment limits impact investors?

The suspension of fresh inflows in several international funds is largely due to regulatory caps on how much Indian mutual funds can invest overseas. As many fund houses have reached these limits, they are unable to accept new subscriptions, even if investor demand remains strong.

Pathak said that overseas investment limits can restrict fresh inflows in global funds, reducing immediate access, and investors can consider reopened funds, international ETFs, direct investing through LRS, or domestic funds with global exposure as alternatives.

Agarwal said that the $7 billion industry cap is less than 1% of India's total mutual fund AUM and has practically shut the door on fresh international fund investments for most investors. Investors may consider alternatives such as LRS-based direct overseas investing of up to USD 2.5 lakh per year or international ETFs that still have regulatory headroom to take funds.

Mutual funds that have restricted fresh subscriptions

Last week, Nippon India Mutual Fund temporarily halted fresh subscriptions in its two international funds - Nippon India Taiwan Equity Fund, which was the best-performing mutual fund of FY26 and Nippon India Japan Equity Fund.

In March, PGIM India Mutual Fund imposed temporary restrictions for subscription to units in its three international funds - PGIM India Global Equity Opportunities Fund of Fund, PGIM India Emerging Markets Equity Fund of Fund and PGIM India Global Select Real Estate Securities Fund of Fund. Several other fund houses have temporarily restricted the subscription in their respective international funds.

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In the budget 2025, Finance Minister Nirmala Sitharaman announced an increase in the threshold for tax collected at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) from Rs 7 lakh to Rs 10 lakh, which market experts then believed would reduce the upfront tax burden for investors remitting funds abroad.

What should investors do, and is it time to switch?

If your fund has stopped accepting fresh inflows, then what should you do, and should you continue SIPs where allowed, or consider switching to other categories? Agarwal said that non-acceptance of fresh inflows in an existing fund should not be a reason for worry for investors; the existing units are completely safe, and there is no need to redeem or switch out of them unless triggered by some asset allocation change.

SIPs should be continued as planned wherever the limits are available, Agarwal further said.

Sharing a similar opinion, Pathak said that existing investors need not worry if subscriptions are paused as current holdings remain unaffected, and existing SIPs may continue where allowed, as exiting only because of temporary restrictions may not be necessary.

Historical performance and recent changes

In the last three years and five years, international funds delivered an average return of 24.16% and 10.69%, respectively. Nippon India Taiwan Equity Fund remained the topper in the last three years with 61.27% CAGR, whereas Mahindra Manulife Asia Pacific REITs FOF gave the lowest return of 6.70%.

In the last five years, Motilal Oswal Nasdaq 100 FOF gave the highest return of 22.65%, whereas Edelweiss Greater China Equity Offshore Fund gave the lowest return of around 2.74%.

In the budget announcement made in July 2024, the Finance Minister shocked investors with a change in the capital gains structure but provided relief to those investing in international funds. The holding period for equity FoFs, overseas FoFs (international funds), and gold mutual funds was reduced from more than 36 months to more than 24 months, along with a change in the LTCG tax rate to 12.5% (down from being taxed as per the tax slab rate), while the STCG tax rate remained unchanged.

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A good time to take global exposure or wait for clarity?

Pathak said international funds should be viewed as a long-term allocation rather than a short-term opportunity, and instead of waiting for perfect clarity, gradual investing through SIPs or STPs can be a better approach amid valuation uncertainty.

Agarwal said that it seems that the bulk of the high returns in international funds has already been achieved, with US markets trading above their long-run average valuations after three consecutive years of 20%+ returns.

He further said that new investors should invest preferably through SIPs with a 7–10-year horizon, and lumpsum investment should be avoided at these levels. The regulatory limits should not be a deciding factor in investing or exiting from these funds, Agarwal added.

According to Vinay Paharia,CIO, PGIM India Mutual Fund, Indian equity markets in March 2026 were impacted by heightened global uncertainty, volatility in crude oil prices, and sustained FPI outflows and recorded their fourth consecutive monthly decline. The escalation of the West Asia conflict pushed Brent Crude to above US$125/bbl at the end of March from US$70.8/bbl at the end of February.

Paharia further said that Indian Rupee witnessed sharp depreciation against US$, closing at Rs 94.8/US$ compared to Rs 90.9/US$ at the end of February. RBI conducted large FX market interventions in March to curb rupee volatility amid capital outflows and oil shock. FPIs sold US$12.1 bn of Indian equities in the secondary market, whereas DIIs bought US$15.4 bn.

Key risks in international funds

Agarwal said that US market valuations are already stretched. Crude oil trading near $100 due to geopolitical tensions is a real macro risk. Additionally, any strengthening in INR against USD can act as counterproductive for the returns, and international funds should be used as a diversification strategy rather than a returns-chasing move.

Pathak said that key risks include rich global valuations, currency fluctuations, geopolitical tensions, and regulatory limits on overseas investments, and investors should keep exposure moderate as part of a diversified portfolio.

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International mutual funds are one category which caters to different broad international markets, commodities, foreign indices, among others. To sum it up, the performance of the scheme will depend on the geography under which your money is invested.

That means you should pay extra attention to your investments in international funds. Pay extra attention to which geography or indices you are investing in. One should always consider their risk appetite, investment horizon, and goals before making any investment decisions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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