India-focused offshore funds and ETFs (exchange-traded funds) recorded the fourth straight quarter of net inflows in the April-June 2023 period, according to the Morningstar Offshore Fund Spy report.Before the September 2022 quarter, these funds had seen 17 consecutive quarters of net outflows. An offshore India fund is one that is not domiciled in India but invests primarily in the Indian equity markets.The category received a net inflow of $3.19 billion during the June quarter — significantly higher than the $803-million in the March quarter.
Within the category, India-focused offshore funds witnessed net inflows of $2.42 billion — the highest since the March 2015 quarter — a massive surge from the $314 million in the March quarter.Thanks to robust net inflows and the strong rally witnessed by the Indian equity markets, the asset base of India-focused offshore funds and ETFs jumped close to 20% to $50.6 billion, from $42.4 billion in March. Of this, offshore ETFs accounted for $11.5 billion and offshore funds $39.05 billion.
According to the report, most India-focused offshore funds are actively managed and have expense ratios substantially higher than ETFs. Their continuing popularity indicates that foreign investors prefer active management when investing in India.On the other hand, a lower expense ratio is helping offshore ETFs gain traction. They also offer easy exit options and are more cost-efficient than funds, many of which charge for early exits.