Onshore Funds in India: Meaning, Types and Taxation

In summary

An onshore fund is generally established in India by a domestic investment manager to pool capital for investments in Indian opportunities.

• An onshore fund is domiciled in India.
• Domestic and foreign investors can participate, subject to applicable rules.
• Onshore AIFs are governed by SEBI’s AIF framework.
• A Private Placement Memorandum forms part of the fund documentation.
• Unified, master-feeder, and parallel structures can use onshore vehicles.
• An onshore structure is different from an offshore fund structure.

The term is broader than a mutual fund category. In the alternative-investment context, it commonly refers to an India-domiciled fund vehicle used to pool capital and invest in Indian assets.

An onshore fund is an investment fund established and regulated in the same country in which it is domiciled.

In the Indian context, an onshore mutual fund is generally a mutual fund established in India and governed by Indian securities regulations.

The term does not mean that every rupee must be invested only in Indian securities. An India-domiciled fund may invest in:

• Indian equity shares
• Government securities
• Corporate debt
• Money-market instruments
• Gold or other permitted assets
• Overseas securities where its mandate permits

Therefore, “onshore” mainly describes the fund's domicile and regulatory framework, while the Scheme Information Document explains where and how the fund can invest.

An onshore mutual fund pools money from investors and invests it according to the scheme's stated investment objective.

The Asset Management Company, or AMC, manages the portfolio. It chooses securities within the limits set by the scheme documents and applicable regulations.

When you invest, you receive mutual fund units according to the applicable Net Asset Value, or NAV.

NAV represents the per-unit value of the scheme's assets after deducting liabilities and expenses. Mutual funds calculate NAV at the end of each business day, while the NAV applicable to your transaction depends on factors such as the transaction time and applicable realisation rules.

Your investment value then rises or falls according to the NAV and the number of units you hold.

You may generally invest through an SIP or lumpsum, depending on the scheme.

Indian onshore mutual funds can belong to different SEBI-recognised scheme categories depending on their investment objective and asset allocation.

Common examples include:

Risk should not be decided only from the category name.

Every scheme has its own Riskometer based on the portfolio. SEBI's six current Riskometer levels are Low, Low to Moderate, Moderate, Moderately High, High, and Very High.

Yes, an India-domiciled onshore mutual fund can have overseas exposure when its scheme mandate and applicable regulations permit it.

This is why defining an onshore fund simply as a fund that “invests mainly in India” can be misleading.

For example, an international mutual fund may be:

• Established in India
• Managed under Indian mutual fund regulations
• Offered to investors in India
• Invested partly or substantially in overseas securities

It can therefore be an Indian onshore fund even though its underlying assets are international.

The important distinction is between where the fund is domiciled and where the fund invests.

Onshore and offshore funds mainly differ in their place of establishment and regulatory jurisdiction.

Therefore, an offshore fund should not automatically be described as a fund that only invests outside India.

Similarly, currency risk cannot be decided solely from the words “onshore” or “offshore”. It depends on the currencies of the underlying investments.

SEBI is the main securities-market regulator for mutual funds established in India.

Different organisations have different roles:

SEBI also requires mutual fund schemes to display their Riskometer.

AMFI supports industry standards and practices, but investors should not describe it as the regulator of mutual funds.

Onshore mutual funds may suit investors who want access to professionally managed schemes established under India's regulatory framework.

They may be considered by investors who:

• Want exposure to mutual funds domiciled in India
• Prefer SIP or lumpsum investing
• Want a choice across multiple asset classes
• Have completed the required KYC
• Accept market-linked gains and losses
• Choose schemes according to financial goals

An onshore fund is not automatically safer than an offshore fund.

Its risk depends mainly on the assets it holds, concentration, credit quality, market exposure, investment strategy, and other scheme-specific factors.

Always review the Riskometer and scheme documents before investing.

Tax on an onshore mutual fund depends on its tax classification and not simply on whether it is called onshore.

The broad current framework includes:

Qualifying long-term gains under the general current framework are generally taxed at 12.5% without indexation, subject to the relevant provisions.

For specified mutual funds, special rules apply. From the current tax framework, the definition broadly covers funds investing more than 65% of their

 proceeds in debt and money-market instruments, or qualifying funds investing in such funds.

Tax rules can vary by scheme, acquisition date, investor status, and transaction. Therefore, investors should check the applicable tax treatment at the time of redemption.

An onshore fund is primarily defined by where it is established and regulated, not simply by whether it invests only in Indian securities. Indian onshore mutual funds can include equity, debt, hybrid, index, thematic, and other permitted schemes.

Before investing, check the scheme's portfolio, Riskometer, costs, tax treatment, and investment objective. NRIs can also generally invest subject to applicable KYC and foreign-exchange requirements.

Last reviewed: September, 2026

Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.