Should an Indian investor buy a Nasdaq 100 FoF or an S&P 500 FoF for US exposure?

For diversified, broad US market exposure, an S&P 500 FoF is the cleaner default — it covers about 80% of US listed market value across all sectors. The Nasdaq 100 is a concentrated technology and platform tilt; the top 10 names typically make up over half the index. Investors who already have technology exposure through Indian IT services or who want broad US economic participation should usually anchor on an S&P 500 fund. A Nasdaq 100 fund makes sense as a satellite tilt for investors who specifically want US tech beta and understand the higher concentration and drawdown profile.

What is the SEBI overseas-investment ceiling and is it still relevant in 2026?

SEBI sets a collective USD ceiling for how much Indian mutual funds can invest overseas. When the industry collectively approaches this ceiling — historically around 7 billion USD — AMCs are forced to halt new subscriptions in international funds. This happened across 2022 and 2023, and many funds were closed to new SIPs for months. Through 2024 and 2025, headroom returned as some assets matured and the ceiling was reviewed. As of 2026, most major US-focused FoFs are open, but the ceiling remains a structural constraint and availability can change at short notice. Investors with strong long-term US exposure plans should diversify their pathway across FoF, LRS, and GIFT routes.

How does the FY 2025-26 tax regime treat US-focused international funds?

Equity-oriented international funds — those that hold 65% or more in listed equity, including direct US equity FoFs that meet the equity-classification rules — attract 12.5% LTCG on gains above the annual threshold after a 24-month holding period, and 20% STCG before 24 months. Non-equity-classified FoFs (which include several older international FoFs that hold ETF units rather than direct equity) are taxed at slab rate on capital gains. Investors should check the specific scheme's tax classification in its scheme information document — it is the single most important driver of after-tax returns over a long holding period.

Does currency hedging make sense for Indian investors in US funds?

For long-horizon Indian investors, an unhedged USD position is generally preferable. The structural USD/INR depreciation has been a meaningful tailwind over decades. Hedging removes this tailwind and adds hedging cost. Hedged products make sense only for short-horizon goals (under 3 years) where currency volatility could meaningfully damage outcomes. For a typical 10-year-plus retirement or education goal, leaving the USD exposure unhedged has historically been the right call.

International Investing — Deep Dive (1/3)

Topic 1 of 3~5 min read

US Markets Deep Dive

Definition

A structural look at why the United States accounts for roughly 60% of global listed equity market capitalisation, what each headline index actually represents, and how Indian investors should size US exposure within an India-heavy portfolio under the FY 2025-26 tax regime.

In Simple Words

Most Indian investors who add international exposure end up with the United States as their dominant overseas allocation, and for good structural reason. As of mid-2025, US-listed equities account for roughly 60% of the MSCI All Country World Index by market capitalisation, despite the US representing only about 25% of global GDP. The world's largest companies by market value — Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta — are all US-listed, and a typical Indian portfolio that holds only domestic equities will have effectively zero exposure to this cluster of mega-cap technology and platform businesses. The three headline US indices that Indian funds typically track each tell a different story. The S&P 500, sitting near 5,800 in mid-2025, is a broad market-cap-weighted basket of 500 large US companies covering about 80% of US listed market value — it remains the global benchmark for diversified US exposure. The Nasdaq 100 is narrower and far more technology-heavy, with the top ten constituents typically representing more than half of the index by weight; investors who buy a Nasdaq 100 FoF are buying a concentrated bet on US technology and platform businesses, not broad US exposure. The Dow Jones Industrial Average is a 30-stock price-weighted index with limited Indian fund offerings — it is more historical signpost than serious investable benchmark for most Indian portfolios. A second structural point Indian investors should internalise is currency. Over the last twenty years, USD/INR has depreciated at roughly 3 to 3.5% annualised, meaning even a flat US equity return translates into a positive INR return for an unhedged Indian investor. This is a meaningful tailwind that is easy to forget when looking at headline USD returns. Third, the FY 2025-26 tax framework matters: international equity-oriented funds (those holding 65% or more in equity) attract 12.5% LTCG after 24 months, while non-equity-classified international FoFs attract slab-rate tax. The 2022-23 freeze on new subscriptions, triggered when AMCs collectively approached SEBI's 7 billion USD industry overseas-investment ceiling, reopened progressively through 2024 and 2025 as headroom returned. As of 2026, most major US-focused FoFs have resumed new SIPs, although availability can shift quickly when the ceiling is approached again.

Real-Life Scenario

Consider Priya, 35, a Mumbai-based product manager with a 10 lakh portfolio that is 100% Indian equity. Her financial planner suggests adding 15% US exposure for 15-year retirement and education goals. She invests 1.5 lakh into a US S&P 500-tracking FoF in March 2026 via her existing INR folio. Over a hypothetical 15-year horizon, if the S&P 500 compounds at 9% in USD and USD/INR depreciates at 3% annually, her INR return is approximately 12% CAGR. Her 1.5 lakh would grow to roughly 8.2 lakh in INR over 15 years. Under the FY 2025-26 regime, if her FoF qualifies as equity-oriented, the LTCG over 1.25 lakh per year is taxed at 12.5% — substantially better than the slab-rate treatment that applies to non-equity-classified intl FoFs. The currency tailwind alone contributed roughly 3% of her annual return, which compounded over 15 years explains a meaningful share of her total INR gain.

Key Points to Remember

US listed equities = ~60% of global market cap; almost zero exposure in a domestic-only Indian portfolio.

S&P 500 is broad US exposure (~5,800 in mid-2025); Nasdaq 100 is concentrated tech; Dow is a narrow 30-stock historical index.

USD/INR has depreciated ~3-3.5% annualised over 20 years — a structural tailwind for unhedged Indian investors.

Equity-oriented international funds attract 12.5% LTCG after 24 months under FY 2025-26 rules; slab rate applies to non-equity-classified FoFs.

SEBI overseas-investment ceiling (industry-wide ~$7B headroom) froze new subscriptions in 2022-23; most US FoFs reopened through 2024-25.

Home-country bias is real — most Indian investors are 95%+ in INR assets, missing the world's largest profit pools.

A 10-15% US allocation is a common starting point for retirement and education goals with 10+ year horizons.

Frequently Asked Questions

Test Your Knowledge

3 questions to check your understanding

Question 1 of 3Score: 0/0

Approximately what share of global listed equity market capitalisation do US-listed equities represent as of mid-2025?

Summary Notes

US equities are ~60% of global market cap — a domestic-only Indian portfolio is structurally underweight global mega-caps.

S&P 500 = broad diversified US exposure; Nasdaq 100 = concentrated tech tilt; Dow = legacy 30-stock benchmark.

USD/INR depreciation of ~3-3.5% annualised has been a long-term tailwind for unhedged Indian investors in US assets.

FY 2025-26: equity-oriented international funds at 12.5% LTCG post 24 months; non-equity FoFs at slab rate — classification matters.

SEBI's collective overseas-investment ceiling is a real structural constraint; subscription windows can close abruptly.

10-15% US allocation is a common starting weight for long-horizon retirement and education goals.