An emerging market fund is a mutual fund, ETF, or investment vehicle that invests primarily in equities, bonds, or other financial instruments of companies or governments located in emerging economies — countries characterised by rapid economic growth, industrialisation, improving institutions, and expanding capital markets, but with higher political, currency, and liquidity risks than developed markets. Major emerging markets include India, China, Brazil, Indonesia, South Africa, Mexico, and Vietnam. From the perspective of Indian investors, investing in an emerging market fund provides exposure to the high-growth potential of economies at a similar or earlier stage of development as India. In India, Fund of Funds (FoFs) investing in global emerging market ETFs — such as those tracking the MSCI Emerging Markets Index — are available through several AMCs, providing Indian investors with diversified international exposure within the mutual fund framework under the RBI's Liberalised Remittance Scheme (LRS). Emerging market funds carry currency risk (from INR versus the fund's underlying currencies), geopolitical risk, and regulatory risk in the host countries — in addition to standard equity market risk.
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