Mutual funds' overseas assets jump 24% to $10.2 billion in FY2026

Indian mutual funds have witnessed a significant surge in their overseas investments, with assets under management (AUM) in international funds climbing 24% to reach $10.2 billion in the financial year 2025-26 (FY2026). This growth underscores a rising appetite among Indian investors for global diversification, as they seek to tap into developed and emerging markets beyond domestic shores. The data, released by the Association of Mutual Funds in India (AMFI) and reported by Moneycontrol, highlights a robust trend that has been building over the past few years.

The increase in overseas assets is not just a reflection of higher inflows but also of favourable market movements in global equities. Fund managers note that investors are increasingly looking at international funds as a strategic allocation to hedge against domestic volatility and to participate in the growth of global technology and healthcare giants. According to industry analysts, the surge is also aided by the ease of investing through mutual fund routes, which offer tax efficiency and professional management compared to direct stock purchases abroad.

A closer look at the category-wise break-up reveals that funds investing in US equities and exchange-traded funds (ETFs) have been the primary drivers of this growth. For instance, funds focused on the S&P 500 and Nasdaq indices have attracted substantial inflows, given the outperformance of US markets relative to Indian benchmarks in recent months. Additionally, funds targeting developed markets in Europe and Japan have also seen steady contributions, as investors diversify across geographies to mitigate country-specific risks.

However, this growth is not without its challenges. The Reserve Bank of India (RBI) has set a cumulative limit of $7 billion for mutual fund investments abroad under the Liberalised Remittance Scheme (LRS) and the mutual fund route. As of the end of FY2026, the industry has utilised approximately $6.5 billion of this limit, leaving a headroom of only $500 million. This has prompted fund houses to temporarily suspend lump-sum investments in certain popular international funds, while continuing to accept systematic investment plans (SIPs) to manage the quota efficiently.

“The current limit is a binding constraint, and we are witnessing a scenario where demand is outstripping the available quota. Fund houses are exploring innovative ways to offer global exposure, such as through fund of funds investing in domestic ETFs that track international indices, but these too are subject to the same overall limit,” said a senior fund manager.

Analysts suggest that the RBI may consider revising the limit upward in the coming months, given the sustained investor interest and the need to provide diversification opportunities. However, any such move would need to balance capital flow management and exchange rate stability. Meanwhile, investors are advised to monitor the availability of international funds and consider alternative routes like direct international ETFs or global funds listed on domestic exchanges, which may not be subject to the same limits.

In the meantime, the trend of increasing overseas assets is expected to persist, driven by factors such as the depreciation of the rupee against the dollar, which enhances the returns for Indian investors when converted back, and the structural growth in global markets. As more investors recognise the benefits of international diversification, the pressure on the regulatory ceiling is likely to intensify, prompting a re-evaluation of the current framework.

For those looking to capitalise on this trend, it is crucial to stay informed about the latest regulatory changes and fund availability. Market to Money offers comprehensive insights and updates on mutual fund investments, helping you make informed decisions. Visit https://markettomoney.co.in for detailed analysis and expert opinions.