India-Focused Offshore Funds, ETFs Saw Net Outflows After 27 Consecutive Months In 2024, Says Morningstar Report

India-focused offshore funds and Exchange Traded Funds (ETFs) saw net outflows of $954 million in the quarter ended December 31, 2024. Notably net outflows were seen in the category after nine consecutive quarters or 27 months.

While the category saw net outflows in the December quarter, the year ended with a net inflow of $23.4 billion in 2024. The net inflows into both India-focused offshore funds and ETFs for the second half of 2024 (July to December) stood at $5 billion. The inflows into India-focused offshore funds stood at $4.6 billion between July and December and on the other hand the net inflows into ETFs stood at $391 million in the same time-period.

Trends In Inflows

India-focused offshore funds saw net inflows of $4.9 billion during the September quarter, however, the category also saw a net outflow of $238 million in the December quarter. On the other hand India-focused offshore ETFs saw net inflows of $1.1 billion in the September quarter but witnessed net outflows of $716 million in the December quarter.

The report claimed that stronger inflows and significantly less quantum of net outflows from the India-focused offshore fund segment compared to the ETF segment indicate that foreign investors continue to view India as a long-term investment destination, and chose to stay invested in India-focused offshore funds amid broader sell-offs.

Asset Base Expansion

Morningstar said in the report the asset base of India-focused offshore funds and ETFs saw a marginal expansion of 0.01 per cent as the asset base grew to $103.4 billion in December 2024 compared to $102.3 billion in July 2024. The report stated that the marginal increase happened despite the unfavourable environment seen in Indian markets.

India-focused Offshore Funds See Increase In Market Share

In December, India-focused offshore ETFs made up $28.7 billion of the total $103.4 billion asset base. The asset base of India focused offshore ETFs declined from $29.9 billion in June 2024. On the other hand, the share of offshore funds increased to $74.7 billion in December from $72.5 billion in June. The shift was also seen in the way the market share of ETFs declined from 29.2 per cent in June to 27.7 per cent in December. In the same time period, the market share of offshore funds grew from 70.8 per cent in June to 72.3 per cent in December.

The report added that while investing in India focused offshore funds comes at a higher cost compared to India focused offshore ETFs, their rising market share indicates that investors prefer active management over passive strategies.

"Most India-focused offshore funds are actively managed, with expense ratios significantly higher than those of ETFs. The continued popularity of these funds, despite higher costs, suggests that many foreign investors prefer active management over passive strategies when investing in India," Morningstar said.