It has now been eight years since the government allowed Indians to invest in stocks abroad. However, till now only a minuscule proportion of Indian investors have done so, whether directly or through mutual funds. However, I believe that it'll be now only a matter of time since this changes in a substantial way. A certain allocation to global equities through mutual funds should now be on the menu for all savvy investors.
From the time that foreign investing had been opened up in Budget 2003 till quite recently, Indian equities had generally outrun global ones. This gave Indian investors little incentive to look outside. However, over the last couple of years, there have been several stretches of time when international funds have done better than domestic ones. Currently, on ValueResearchOnline.com, the international category is comfortably ahead of almost all domestic ones, including core categories like Large-Cap, Multi-Cap and Large & Mid-cap funds.
It's true that some part of international funds' lead is because of the decline of the rupee's value but that's not all there is to it.
There are other nuances to evaluating international funds. Till recently, international fund performance was skewed by that of gold funds, which invest in stocks of gold mining and related businesses. However, in recent times, gold stock funds have performed quite poorly, for obvious reasons but other international funds have more than restored the average for the category.
One caveat that those looking to go global are the plethora of specialty funds that Indian fund houses have launched, probably for marketing reasons alone. The result is that out of the 30 international funds, only about 10 are diversified equity funds. The rest have narrow mandates limited to some investing theme or sector. Investors looking for international exposure should clear of these. The funds to choose are the ones that can invest in any sector anywhere in the world, or are limited only to western equity markets, dominated by business with a global footprint.