International equity Fund of Funds (FoF)

An international equity Fund of Funds (FoF) is a mutual fund scheme that invests in foreign equity mutual fund schemes operated outside India, providing Indian retail investors access to global markets through a familiar mutual fund wrapper. The category is the dominant Indian channel for accessing foreign equity through mutual fund structures, complementing the alternative Liberalised Remittance Scheme (LRS) direct-foreign-investing route.

International equity FoFs are subject to:

• The overseas investment cap (USD 7 billion industry, USD 1 billion per AMC).
• The post-2023 debt-oriented tax treatment.
• Double-TER structure (Indian FoF TER + foreign-fund TER).

For Indian retail investors, the trade-offs versus direct LRS are operational simplicity for the FoF route versus full universe access and potentially lower fees for the LRS route.

SEBI FoF framework for international

Indian FoFs investing in foreign mutual funds operate under:

• The SEBI master circular on overseas investments.
• Standard SEBI FoF provisions.
• RBI’s FEMA framework on outbound investment.

Major international equity FoFs

US-focused

• Motilal Oswal Nasdaq 100 Fund of Fund: Investing in foreign Nasdaq 100 ETFs.
• Franklin India Feeder - Franklin US Opportunities Fund: Investing in Franklin US Opportunities Fund.
• ICICI Prudential US Bluechip Equity Fund: Investing in US large-cap funds.
• Aditya Birla Sun Life Nasdaq 100 FoF.

Other regional

• Edelweiss Greater China Equity Off-Shore Fund: China-focused.
• HSBC Brazil Fund: Brazil/Latin America.
• Various other FoFs with regional/thematic foreign exposure.

Operational considerations

Overseas investment cap

The overseas investment cap directly constrains international FoF subscription availability. The 2022 cap exhaustion caused multi-month subscription halts.

Currency

Foreign holdings are in USD/EUR/HKD etc. Currency conversion to INR happens at the FoF level. Currency volatility passes through to investors.

Settlement

International FoFs may have longer settlement timelines than domestic schemes due to foreign-market and currency-conversion timing.

Double-TER structure

International equity FoFs face:

• Indian FoF TER: 0.50-2.25 per cent.
• Foreign-fund TER: 0.50-1.50 per cent.
• Combined: 1.00-3.75 per cent.

This is materially higher than domestic equity index funds (0.20-0.50 per cent) or US-listed ETFs accessed via LRS (0.05-0.30 per cent for major indices).

Tax treatment

Post-April 2023 framework

International equity FoFs are treated as debt-oriented for tax (they invest in foreign schemes, not domestic Indian equity):

• All gains taxed at slab rate as short-term regardless of holding period.
• No long-term capital gains preference.
• No indexation benefit.

Pre-April 2023 purchases

Continue under pre-2023 LTCG treatment (12+ months for LTCG with indexation).

Comparison with LRS direct investing

For cost-sensitive investors with international preferences, LRS may be preferable despite operational complexity. For convenience-prioritising investors, FoFs are simpler.

Role in portfolios

International equity FoFs suit:

• Investors wanting foreign exposure via mutual fund route.
• Operational simplicity priority: Avoiding LRS complexity.
• Smaller foreign allocations: Where LRS setup overhead is uneconomic.

See also

• Mutual funds in India
• Fund of Funds
• Domestic equity FoF
• International mutual fund
• US Mutual Fund India
• International ETF India
• Overseas investment cap
• LRS
• Debt mutual fund taxation (post-2023)
• TER regulation and slabs

External references

• SEBI
• AMFI India
• Reserve Bank of India

References

1. SEBI master circular on overseas investments.
2. RBI FEMA framework.
3. AMFI scheme data on international FoFs.
4. Finance Act 2023 debt taxation amendment.