International mutual funds offer 14% average return in 1 year. Are global markets the new hotspot?

International mutual funds have delivered an average return of 14.5% over the past year, ranking second among all fund categories. Market experts attribute this performance to a strong rally in U.S. tech stocks, a rebound in Chinese equities, and improved investor sentiment across European markets.

“A softer dollar, easing inflation, and a global shift toward rate cuts—already initiated by some central banks—have supported risk assets. While some volatility may persist, the broader orientation is supportive, making this a good time to start SIPs/STPs rather than wait for a better entry,” Sagar Shinde, VP of Research at Fisdom, shared with ETMutualFunds.

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Another expert, comparing the returns of international mutual funds with the Nifty50 over the past year and month, noted that these returns are significantly influenced by global geopolitical events, such as Trump-era tariffs, speculation around the upcoming U.S. elections, and shifting trade agreements, making international funds more event-driven and volatile.

“Over the long term, Indian markets are much more consistent compared to international funds, which shows that domestic funds have higher return potential with a wide range of categories to pick from,” Chirag Muni, Executive Director, Anand Rathi Wealth Limited, shared with ETMutualFunds.

According to Chirag, if we look at the long-term risk adjusted returns of global markets, the U.S. and Indian markets have shown better efficiency compared to China, Hong Kong and Japan and in recent months, international markets have seen sharp, event-driven rallies like China’s stimulus-led surge or U.S. trade-related volatility, but these are often short-lived.There were 66 international funds which have marked their presence in the last year, and out of these, 44 gave double-digit returns, 21 gave single-digit returns, and one gave a negative return. DSP World Gold FoF offered the highest return of 70.47% in the same period. Mirae Asset Hang Seng TECH ETF FoF and Mirae Asset NYSE FANG+ETF FoF gave 52.06% and 41.06% returns, respectively, in the said period. PGIM India Global Equity Opp FoF gave the lowest single-digit return of around 0.07% in the mentioned period. Mirae Asset Global Electric & Autonomous Vehicles Equity Passive FOF lost 1.70% in the same period.

After reviewing the performance of international funds, Shinde suggests a 10–15% allocation for optimal diversification. He recommends keeping the U.S. as the core exposure, citing its innovation and strong earnings, while viewing China as a tactical or contrarian bet due to its low valuations and recent policy support.

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“These funds are best used for long-term allocation (5+ years). SIPs/STPs are more prudent in the current environment, helping average out market and currency volatility better than lump sum investing,” he adds.

While refraining investors from investing in international funds and advising to shift focus on a well-diversified mix of domestic equity funds across categories and sectors, Chirag adds that if one looks for global diversification in the portfolio can explore only up to 5 -10% of the overall portfolio.

“International funds can offer exposure to global opportunities, but given its track record for volatility and uneven performance across global markets, investors are advised not to rely heavily on them. It is more suitable to do an SIP in diversified domestic equity funds over the long term, as they provide stronger long-term growth and better risk-adjusted returns. Trying to time global markets or chase short-term rallies is not advisable, as such moves are often driven by unpredictable events and can lead to poor investment outcomes,” Chirag said.

Over the last three months, international funds have delivered an average return of 5.61%, and 8.58% over the past six months. DSP World Gold FoF topped the charts across both timeframes.

Over the past three years, the best-performing economies included the US, Taiwan, and Nasdaq, while Greater China and some US-focused funds lagged during the same period.

Post these funds offering single-digit average return in the short-term, Shinde mentions that the outlook for international funds remains constructive but nuanced and as several central banks—especially in Europe and emerging markets—have already begun their rate-cutting cycles, which supports global liquidity and risk assets.

“At the same time, global equities benefit from resilient growth, improving earnings, and attractive valuations outside the US. However, headwinds like rising trade tensions, tariffs, and geopolitical risks could cause intermittent volatility. Overall, international funds remain a valuable long-term diversification tool, with opportunities across the US, China, and selective global themes,” Shinde adds.

While sharing India’s strong economic outlook, IMF projections, RBI rate cut, and with a stable fiscal deficit projected at 4.4% for FY26 and strong tax revenues, macro fundamentals remain solid, Chirag advises investors not to go for international funds.

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International funds invest across a range of geographies, commodities, and global indices. Markets like the NYSE, NASDAQ, the broader US economy, and Taiwan delivered strong performance, while regions such as Hang Seng and Greater China underperformed. Ultimately, a fund’s returns hinge on the specific geography it’s exposed to.

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.

(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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