Investing in a profitable International Exchange-Traded Fund (ETF)

Expanding Horizons: Investing in US Markets Through Indian Funds Amidst Regulatory Limitations

In the ever-evolving world of finance, Indian investors seeking opportunities in the US market face certain restrictions due to regulatory limits imposed by SEBI and RBI. Here's a breakdown of the current landscape and strategies to navigate these challenges.

Regulatory Limitations and Their Impact

The overall industry limit for mutual funds investing in ETFs is set at USD 1 billion, with individual mutual fund houses capped at the same amount and an additional USD 1 billion for overseas ETFs. These caps have largely paused fresh investments in foreign mutual funds by Indian domestic mutual funds. [2][4]

As a result, only a minority of international mutual funds (approximately 26 out of 70 funds) currently accept new subscriptions, focusing on select global markets. [2]

Investing in US Markets: Alternative Approaches

Given the restrictions, one way to invest in the US market and other international equities is by investing in mutual funds or ETFs domiciled in the US or globally that are available for direct investment, bypassing Indian mutual funds’ overseas caps.

Highly rated international mutual funds and ETFs with significant exposure to US and global stocks include the Marsico Global Fund, which invests roughly 55% in US companies and 45% foreign stocks, and Morningstar’s Gold-rated international index funds such as Fidelity Total International Index, iShares Core MSCI Total International Stock ETF, Vanguard Total International Stock ETF, and others listed as leading global stock index funds. [1][3]

Alternatives for Indian Investors

For Indian investors facing mutual fund restrictions, alternatives include:

Investing directly in international mutual funds or ETFs available through global brokerages.
Using a combination of funds that invest in multinational corporations with significant US market presence.
Considering thematic global equity funds like Marsico Global that focus on well-positioned companies across countries, including the US. [1][4]

Funds of Funds: A Route to International Exposure

There is a category called funds of funds (FoFs) that take money from Indian investors and invest in existing international ETFs. Some of the currently available options 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.

Looking Ahead

The ban on mutual funds investing in foreign stocks may be lifted when the Reserve Bank of India increases the investment limit in foreign stocks. Keeping abreast of any changes in SEBI/RBI regulations easing overseas investment limits is crucial for investors seeking to expand their portfolios beyond domestic markets.

Key Points Summary

| Aspect | Details | |-------------------------------|-------------------------------------------------------------------------------------------| | Regulatory Limits | USD 7B industry-wide; USD 1B per AMC and ETFs limits on overseas investments by SEBI/RBI | | Effect on Investment | Pause on fresh investments via Indian mutual funds in foreign stocks | | Availability of Funds | ~26/70 international mutual funds open for subscriptions (some top funds closed) | | Recommended US/International Funds | Marsico Global Fund (mixed US and foreign); Morningstar Gold-rated index funds (Fidelity, Vanguard, iShares) | | Investment Alternatives | Direct investing in global funds/ETFs via international brokers; thematic global funds |

By following these strategies, investors can navigate regulatory constraints while targeting leading international funds for portfolio diversification focused on the US market.

Mutual funds that focus on US markets are still accessible to Indian investors, despite the regulatory limitations, by directly investing in mutual funds or ETFs domiciled in the US or globally. Some highly-rated international mutual funds with significant exposure to US stocks include the Morningstar Gold-rated international index funds such as Fidelity Total International Index, iShares Core MSCI Total International Stock ETF, Vanguard Total International Stock ETF, and others listed as leading global stock index funds.

Investors facing mutual fund restrictions in India can also consider funds of funds (FoFs) that invest in existing international ETFs, such as 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.