Which International Exchange-Traded Fund (ETF) is a Wise Investment Choice?

In the ever-evolving world of mutual funds, understanding the current landscape of foreign stock investments is crucial for investors. With the Securities and Exchange Board of India (SEBI) imposing restrictions on domestic mutual funds' overseas investments, here's a guide to help you navigate this regulatory environment.

Many popular mutual funds, such as Parag Parikh Flexi Cap, DSP Value Fund, and Axis Growth Opportunities Fund, maintain a minimum of 65% equity exposure in Indian stocks while also investing part of their portfolio in international stocks. However, SEBI's recent measures have limited the industry-wide scope for overseas securities, with an overall limit of $7 billion and a $1 billion cap on individual fund houses and overseas ETFs, as enforced by the Reserve Bank of India (RBI) [1][3].

Since February 2022, mutual funds have been asked to pause further investments in foreign stocks to avoid breaching these limits. However, investments could resume later as long as these ceilings are respected [1][3]. As of mid-2025, only about 26 out of 70 international mutual funds are accepting fresh subscriptions, with top-performing international funds mostly closed [1]. Some Indian mutual funds, like Edelweiss Technology Fund and Parag Parikh Flexi Cap Fund, still allocate a portion of their portfolios to foreign stocks within these regulatory limits [3].

For those seeking diversification, two main approaches exist. First, investing in Indian-listed international ETFs provides convenient exposure to major global markets while complying with Indian regulations. Examples include the Motilal Oswal NASDAQ 100 ETF, which tracks the NASDAQ 100 index and can be purchased in Indian rupees on Indian exchanges [4].

The second approach is to invest directly in US-listed ETFs, such as the Invesco QQQ ETF, which tracks the same index but is traded in US dollars on US exchanges [4]. While this offers direct exposure and possibly different performance, it requires foreign brokerage accounts and currency conversion.

Given the current caps on overseas investments by mutual funds, investing via Indian-listed international ETFs is more accessible and compliant for ordinary investors [1][3][4]. SEBI has also been easing regulations for asset management companies to attract foreign capital and broaden investment options [5].

In summary, to stay updated on the status of mutual fund foreign stock investments:

Consult the latest mutual fund disclosures from investment platforms or fund houses, focusing on overseas exposure adhering to SEBI/RBI limits [1][3].
Monitor SEBI announcements and AMFI notifications for any regulatory changes affecting overseas investing.
Consider international ETFs listed in India, such as the Motilal Oswal NASDAQ 100 ETF, as practical options for diversification with easier compliance [4].

These steps and investment choices align with SEBI’s recent restrictions and the current regulatory environment for overseas mutual fund investments by Indian investors. Keep in mind that some funds have resumed taking fresh investments recently due to market corrections, but the overall limit has not been increased yet.

Currently, investors can only buy existing units of Indian Fund of Funds (FoFs) that invest in international ETFs. Indian mutual funds offer a variety of options under the international ETFs umbrella, including funds focused on regions, country-specific funds, and thematic funds. The active fund ICICI Prudential US Bluechip Equity focuses on US stocks.

Most international ETFs available are focused on tech stocks and have recently been launched without a one-year history. Examples of international ETFs currently available for investments include Aditya Birla Sun Life NASDAQ 100 FOF, Invesco India - Invesco EQQQ NASDAQ-100 ETF FoF, Kotak Nasdaq 100 FOF, Navi US Total Stock Market Fund of Fund, and Navi Nasdaq 100 Fund of Fund. Navi is the only fund that offers an international ETF investing in Vanguard Total Stock Market ETF, which exposes investors to more than 4,000 stocks.

By January 2023, the mutual fund industry had reached the prescribed limit, causing a halt in fresh investments for most funds investing abroad. Investors should consider investing in a broader index like S&P 100 or S&P 500 instead of the currently popular Nasdaq 100 index-focused ETFs. Indian fund houses manage passive funds like Motilal Oswal S&P 500 Index Fund and Mirae Asset NYSE FANG+ ETF.

It is important for investors to ensure that the ETFs they are buying are not trading at a premium. Investing in thematic or region-specific funds may carry a higher risk. The current limit for mutual funds investing in international stocks is $1 billion per fund house, with an overall industry limit of $7 billion. The overall industry limit for funds investing in ETFs is $1 billion.

US-focused funds are likely to offer better diversification due to US-based companies being global market leaders and US stock markets being less correlated to Indian stock markets. SEBI has restricted mutual funds from investing in international stocks beyond a certain limit. Investors should avoid buying units of international ETFs at a premium due to increased demand. There is a separate limit for funds that invest in ETFs, with each fund allowed to invest a maximum of $300 million. There is a category of funds called funds of funds that take money from Indian investors and invest in existing international ETFs.

In the context of investing, mutual funds that offer foreign stock exposure, such as Parag Parikh Flexi Cap, DSP Value Fund, and Axis Growth Opportunities Fund, are impacted by the restrictions imposed by SEBI on overseas investments, which limit industry-wide investments to $7 billion and individual fund houses to $1 billion.
For investors seeking diversification, considering international ETFs listed in India, like the Motilal Oswal NASDAQ 100 ETF, may prove to be practical options as they comply with Indian regulations and provide exposure to major global markets.