Tired of Volatile Markets? This Week’s Top Performers Reveal a Surprising Shift in Strategy 

While Indian equity markets remained subdued last week, the top-performing mutual funds, which all gained over 3%, shared a common strategy: global diversification, with US and technology-focused international funds like the Invesco EQQQ NASDAQ-100 ETF FoF leading the pack by capitalizing on stronger overseas market performance.

This highlights a critical lesson for investors—allocating a portion of a portfolio to international funds can provide valuable diversification, smooth out returns when domestic markets are volatile, and offer access to global giants and trends not available in India.

However, this short-term trend should be balanced with a long-term perspective, as domestic small-cap funds have historically been powerful wealth creators, and investors should also consider tax-efficient vehicles like Income-Plus-Arbitrage FoFs for the debt portion of their portfolio to optimize post-tax returns.

Tired of Volatile Markets? This Week’s Top Performers Reveal a Surprising Shift in Strategy 

In a financial landscape where domestic indices like the Sensex and Nifty have been treading water, a distinct group of mutual funds has quietly surged ahead. The secret to their success? Looking beyond India’s borders. 

Last week, while the BSE Sensex and Nifty50 dipped slightly, a handful of equity mutual funds delivered returns exceeding 3%. A deeper dive into the top performers list reveals a clear narrative: international funds, particularly those focused on US and technology stocks, are currently steering the ship of short-term growth. For Indian investors, this isn’t just a weekly anomaly; it’s a strategic lesson in global diversification. 

The Weekly Scorecard: A Tale of Two Markets 

The data from the week of October 19-26, 2025, paints a stark contrast. Of the 581 equity mutual funds monitored, only 208 managed to land in positive territory, while a significant 365 ended the week in the red. This underperformance aligns with the slight 0.17% and 0.18% losses on the BSE Sensex and Nifty50, respectively. 

Meanwhile, on the other side of the world, major US indices were rallying. The Dow Jones and Nasdaq gained 1.07% and 0.93%, respectively, and the Hang Seng in Asia climbed 1.16%. This global momentum directly fueled the success of the top 10 performing funds in India, all of which are linked to international markets. 

The Top Performers at a Glance: 

• Invesco India – Invesco EQQQ NASDAQ-100 ETF FoF (+3.28%): Topping the chart, this fund provides direct exposure to the NASDAQ-100, a benchmark heavily weighted towards tech giants like Apple, Microsoft, and Amazon. 

• DSP US Specific Equity Omni FoF (+2.25%): This fund-of-fund (FoF) zeroes in on the US market, capturing the broad-based growth that propelled the S&P 500 and Dow. 

• Edelweiss ASEAN Equity Off-Shore Fund (+2.23%): Demonstrating that opportunities aren’t confined to the US, this fund taps into the growth potential of Southeast Asian economies. 

• Mirae Asset NYSE FANG+ETF FoF (+2.21%): A concentrated bet on the world’s most dominant tech and consumer discretionary companies, including Meta, Apple, Netflix, and Google. 

• Kotak International REIT FOF (+1.93%): Offering a foray into global real estate, this fund diversifies into income-generating properties worldwide. 

The pattern is unmistakable. From US tech and consumer trends to global real estate and electric vehicles, the winning strategy was unequivocally global. 

Beyond the Headlines: Why This Global Shift Matters for Your Portfolio 

This weekly result is more than a flash in the pan; it’s a microcosm of a larger, more powerful investment principle: non-correlation. 

Simply put, different markets and sectors don’t always move in sync. When Indian markets are facing headwinds due to local factors—be it geopolitical tensions, domestic rate cuts, or electoral uncertainty—other economies might be in a different phase of their growth cycle. By allocating a portion of your portfolio to international funds, you inherently smooth out the ride. 

1. Currency Diversification: When you invest in a US-focused FoF, you are also indirectly investing in the US Dollar. A strengthening dollar against the Indian rupee can provide an additional boost to your returns, a phenomenon known as the “currency hedge.” 

1. Access to Unavailable Giants: Want to invest in the transformative growth of companies like Tesla, NVIDIA, or Microsoft? Unless they list directly in India, your only practical avenue is through these international FoFs. They offer a regulated, seamless way to own a slice of global innovation. 

1. Sectoral Thematic Plays: Funds like the “Mirae Asset Global Electric & Autonomous Vehicles Equity Passive FOF” or “Invesco India – Invesco Global Consumer Trends FoF” allow you to bet on global megatrends that may not have pure-play equivalents in the Indian market yet. 

The Tax-Efficient Alternative: Don’t Overlook the “Income Plus Arbitrage” FoF 

While the spotlight is on high-flying equity, another category of funds is gaining traction for its shrewd, tax-efficient structure, particularly for investors in higher tax brackets. Enter the Income-Plus-Arbitrage Fund of Funds (FoF). 

As explained in the reports, these hybrid marvels are engineered for optimal post-tax returns. Here’s how they work: 

• The Structure: They invest less than 65% in fixed-income instruments (for stability and income) and the remainder in arbitrage mutual fund schemes. 

• The Arbitrage Magic: The arbitrage portion exploits tiny price differences of a stock between its cash market and futures market. This is a relatively low-risk strategy as it involves simultaneous buying and selling, not directional market bets. 

• The Tax Advantage: This is the masterstroke. Because over 35% of the fund’s assets are in equity-oriented arbitrage schemes, the entire fund’s gains are treated as equity for tax purposes. This means: 

• If held for more than 24 months, gains are considered Long-Term Capital Gains (LTCG) and taxed at just 12.5% (with indexation benefits). 

• Compare this to debt funds or fixed deposits, where the interest is added to your income and taxed at your slab rate—which can be as high as 30%+ for many investors. 

For someone seeking stable returns with a significant tax advantage over traditional debt instruments, this category, managing over Rs 21,000 crore as of September, is becoming an indispensable part of a sophisticated portfolio. 

The Long-Game Perspective: Small Caps Still Reign Supreme 

While last week belonged to international funds, it’s crucial to maintain a long-term perspective. A separate analysis of lumpsum investments over the past five years tells a different, yet equally compelling, story. Equity funds focusing on the Indian small-cap segment have been absolute wealth creators, with several delivering a Compounded Annual Growth Rate (CAGR) of over 30%. 

• Quant Small Cap Fund: 33.57% CAGR 

• Motilal Oswal Midcap Fund: 33.02% CAGR 

• Nippon India Small Cap Fund: 32.49% CAGR 

An investment of Rs 1 lakh in the top performer five years ago would be worth over Rs 4.25 lakh today. This underscores a fundamental truth: while international diversification is excellent for risk management and capturing global growth, the core of long-term, high-growth wealth creation for Indian investors often remains firmly rooted in the dynamic potential of the domestic economy. 

The Investor’s Takeaway: A Balanced Blueprint 

So, what should you, as an investor, do with this information? 

• Think Globally, Act Locally: Use last week’s data as a catalyst to review your portfolio’s international allocation. Is it 0%? Consider starting with a 10-15% allocation to global FoFs to harness diversification benefits. The Invesco EQQQ or Mirae FANG+ funds are potent options for tech exposure. 

• Don’t Chase, Allocate: Last week’s winners may not be next week’s. Avoid the temptation to put all your money in the top-performing international fund of the moment. Instead, make a strategic, long-term allocation and stick to it, using SIPs to average out your costs. 

• Optimize for Tax: If you are in a high tax bracket and have a horizon of over two years, explore the Income-Plus-Arbitrage FoFs from fund houses like Kotak or ICICI Prudential for the debt portion of your portfolio. The tax savings can significantly enhance your net returns. 

• Stay the Course with Domestic Growth: Do not abandon the long-term potential of Indian equities, especially in the small and mid-cap space, for short-term global trends. They represent two different, non-conflicting strategies in a well-rounded portfolio. 

In conclusion, the true insight from last week’s mutual fund performance isn’t just a list of fund names. It’s a powerful reminder that in an interconnected world, a siloed investment approach is a limitation. By strategically blending the explosive growth potential of Indian small caps with the stabilizing, innovative force of international funds and the tax-smart structure of hybrid solutions, you can build a resilient portfolio capable of weathering any market storm and capitalizing on growth, wherever it may emerge.