Emerging Market Funds

We were speaking with Rajesh last month, an NRI in Dubai who'd been investing exclusively in US stocks for years. 

And he said, "everyone keeps telling me to diversify, but I don't even know where to start with emerging markets." He's not alone. 

At Belong, we work with hundreds of NRIs who've heard about emerging market funds but aren't sure if they're worth the complexity, currency risk, and tax implications. 

This guide answers every question you've been asking about emerging market funds-from what they are to whether they deserve a place in your portfolio-with the clarity you need to make informed decisions. 

Our community on WhatsApp regularly discusses these investment options, and we've seen what works (and what doesn't) for NRIs like you.

The 2025 Shift: Why Emerging Markets Are Back in Focus

Here's something most investment advisors won't tell you upfront: Emerging markets are expected to grow 4.2% in 2025, compared to 1.6% for developed economies.

The wealth shift is real. While you've been watching the S\&P 500, emerging and developing economies now drive nearly 80% of global economic growth. 

The BRICS+ alliance contributes ~35% of global GDP (PPP terms) and is projected to surpass the USMCA bloc (~25% share) by ~10-12% before 2030.

For NRIs in the UAE watching the rupee depreciate year after year, this matters. Emerging markets aren't just India-they're a gateway to growth across Asia, Latin America, Africa, and the Middle East.

👉 Tip: Before investing in any emerging market fund, check Belong's NRI Fixed Deposit Comparison Tool to compare your returns against safer, tax-efficient alternatives.

What Exactly Are Emerging Market Funds?

Emerging market funds are investment vehicles that allocate most of their assets into securities from developing economies. 

These are countries that show rapid economic growth but haven't yet reached the development levels of nations like the US, UK, or Japan.

Think of them as mutual funds or ETFs that buy stocks and bonds from companies in countries like India, Brazil, China, South Korea, Taiwan, Indonesia, and Saudi Arabia. These nations account for nearly half the world's population and two-fifths of global trade.

The key difference? These economies are growing faster but come with more volatility. Infrastructure is still developing. Regulations can change overnight. Political risks are higher. But so is the growth potential.

The Countries and Regions Driving These Funds

In late 2025, China (28.8%), Taiwan (20.5%), India (15.3%), and South Korea (12.9%)made up the bulk of most emerging market fund portfolios. (source)

BRICS nations-Brazil, Russia, India, China, and South Africa-form the foundation of many emerging market funds. But the landscape has expanded to include Indonesia, Saudi Arabia, Turkey, and several ASEAN nations.

What's interesting for NRIs is that when you invest in an emerging market fund, you're essentially betting on India's economic growth while also diversifying across other high-growth regions. You're not putting all your eggs in the Indian basket, but you're still exposed to it.

👉 Tip: If you want pure India exposure without the volatility of other emerging markets, consider our GIFT City investment options instead.

Also Read -India Has DTAA With How Many Countries

Three Types of Emerging Market Funds You Should Know

1. Broad-Based Emerging Market Funds

These invest across multiple countries and sectors. The iShares Core MSCI Emerging Markets ETF holds more than 2,600 stocks across large-, mid-, and small-cap companies. They offer maximum diversification but you're exposed to every emerging market's problems.

2. Regional Emerging Market Funds

These focus on specific geographic areas such as Asia, Latin America, or Africa, allowing investors to target regions showing particular economic strength. If you believe Asia will outperform Latin America, you can choose accordingly.

3. Sector-Specific Emerging Market Funds

These funds now include sectors like healthcare in China and digitization in India. India's biotechnology sector is growing at a CAGR of 18%, targeting a $150 billion market by 2025.

Returns: What the Data Actually Shows

Let's talk numbers. In 2025, emerging markets are beating major developed markets. The MSCI Emerging Markets index has risen ~32% so far this year (YTD as of Nov 5), ahead of the FTSE 100's ~25%, Europe's ~14%, and ~14% increase in the S\&P 500. (source: ishares, bloomberg, marketwatch)

Sounds great, right? But here's the catch-emerging markets have been less impressive in recent years, with particularly weak performance in 2021 despite it being a strong year for most markets during the post-COVID recovery.

The iShares Core MSCI Emerging Markets ETF's 10-year annualized return sits at ~4.4%, reflecting the underperformance of emerging markets relative to developed markets.

The lesson? Emerging markets can deliver spectacular returns in certain years but lag badly in others. They're not a "set it and forget it" investment.

👉 Tip: Use Belong's GIFT Nifty Live Tracker to monitor Indian market trends, which heavily influence emerging market fund performance.

Also Read -Best NRI Fixed Deposit Accounts India Complete Tax & Rate Guide

The Risks No One Tells You About

Political and Regulatory Risk

Governments in emerging markets can change rules suddenly. We've seen it in China with tech crackdowns, in Russia with capital controls, and in Brazil with policy shifts. Your investment can lose 20% overnight due to a regulatory announcement.

Currency Volatility

When NRIs invest in Indian mutual funds or emerging market funds, the investments are made in Indian Rupees (INR) or other local currencies. While the fund may deliver positive returns in local currency terms, actual gains in the investor's home currency (such as USD, GBP, or AED) can be affected by currency fluctuations.

Check our Rupee vs Dollar Tracker to understand how currency movements impact your returns. This is where many NRIs lose money without realizing it.

Market Volatility

Investors who have built a balanced portfolio might consider adding emerging markets funds. They come with added volatility but offer the opportunity for stronger growth than developed markets.

Emerging markets are known for their volatility and are often overshadowed by investor preference for developed markets. In 2025, they've staged a rally, but that can reverse quickly.

Concentration Risk

Many emerging market funds have Taiwan Semiconductor Manufacturing Company as their number one holding, which is more than double the weight of the next largest stock in the MSCI Emerging Markets index. If TSMC stumbles, your entire fund suffers.

Currency: Your Hidden Advantage (or Trap)

Here's where it gets interesting for NRIs in the UAE. If the rupee depreciates against your home currency, it may reduce the net returns upon conversion.

But there's a flip side. Some financial analysts believe a weakening US dollar is a positive tailwind for emerging markets, as these markets typically perform well when the dollar declines.

For NRIs earning in AED (pegged to USD) and investing in INR-denominated assets, you need to think about three currencies: AED/USD, INR, and potentially other emerging market currencies.

👉 Tip: This is exactly why we built GIFT City USD Fixed Deposits-to help NRIs avoid currency risk while earning competitive returns.

Tax Rules for NRIs Investing in Emerging Market Funds

This is where most NRIs get confused, and rightfully so. Let us break it down simply.

If You Invest Through Indian AMCs

When an NRI invests in equity-oriented mutual funds in India, their tax treatment depends on the holding period.If the units are sold within one year, gains are classified as short-term capital gains (STCG) and taxed at 20%.

If held for more than one year, gains are treated as long-term capital gains (LTCG) and taxed at 12.5% on gains exceeding Rs. 1.25 lakh (without indexation). TDS rates for NRIs remain 20% for STCG and 12.5% for LTCG

If You Invest Through Foreign Platforms

NRIs based in the US who invest in mutual funds in India may face tax implications in both India and the US. In India, they will be liable to taxes on realized gains, but in the US, they will also need to account for unrealized mark-to-market gains.

If you face taxation on mutual fund gains in your resident country as well as India, check whether your country has signed a DTAA with India. If so, you can avail yourself of a treaty benefit/Foreign Tax Credit (FTC).

The UAE has a DTAA with India, which can help reduce double taxation. But you need proper documentation and tax filing in both countries.

Also Read - Should NRIs Buy Property in India Before Retirement?

Repatriation Limits

If you invest through your NRE account, all investment proceeds are fully repatriable. However, if you invest from your NRO account, proceeds are repatriable only up to USD 1 million cumulatively per financial year.

👉 Tip: Confused about your tax situation? Our WhatsApp community has tax experts who regularly answer these questions. Join at https://chat.whatsapp.com/EaxmhRZ6fTiChXQAZhqFK4.

How NRIs Can Invest in Emerging Market Funds

You have three main routes:

Through Indian AMCs

NRIs must use NRE or NRO accounts for mutual fund investments. You'll need to complete KYC, submit your passport, visa, and overseas address proof, and then you can invest through platforms like ICICIDirect, HDFCSecurities, or Zerodha.

Also Read -Documents Required for NRI Account Opening in India - Full Guide

Through International Brokers

NRIs in the UAE can invest through international brokers like Interactive Brokers, Charles Schwab, or TD Ameritrade. You'll be buying ETFs like VWO or IEMG. Tax implications differ, and you'll need to report this to Indian tax authorities if you maintain NRI status.

Through GIFT City

This is where Belong comes in. GIFT City offers USD-denominated investment products that eliminate currency risk and offer tax advantages under India's International Financial Services Centre (IFSC) framework.

Also Read - Can NRIs Invest in Government Bonds and Treasury Bills?

The GIFT City Alternative: Smarter, Simpler, Tax-Free

Here's what most investment advisors won't tell you: you don't need to deal with emerging market fund volatility to benefit from India's growth.

GIFT City Fixed Deposits offer:

  • Tax-free returns: No TDS, no capital gains tax
  • USD denomination: No rupee depreciation risk
  • Full repatriation: Transfer money back to UAE without limits
  • IFSC regulation: Governed by international standards
  • Competitive rates: Often better than NRE/NRO FDs

Check current rates on our NRI FD Rates Tool. You might be surprised.

For growth exposure, explore GIFT City Alternative Investment Funds, which offer similar diversification to emerging market funds but with better tax treatment and regulatory oversight.

When Should You Consider Emerging Market Funds?

After working with hundreds of NRI investors, here's our honest assessment:

Consider emerging market funds if:

  • You have a 7-10 year investment horizon
  • You're comfortable with 20-30% volatility
  • You already have a solid base of safer investments
  • You want diversification beyond US/developed markets
  • You understand the tax implications in both countries
  • You can monitor geopolitical developments

Skip them if:

  • You're close to retirement
  • You can't stomach a 20% drop in 6 months
  • You need regular income
  • You're unclear about tax filing in multiple countries
  • Currency risk makes you nervous

For most NRIs we work with, a combination of GIFT City investments, best mutual funds in India, and some developed market exposure makes more sense than pure emerging market funds.

👉 Tip: Not sure where you fit? Use our Residential Status Calculator and Compliance Compass to understand your tax position first.

The Bottom Line

Emerging markets are entering a more favorable phase, supported by a weakening U.S. dollar, fading U.S. exceptionalism, and renewed investor interest in undervalued, under-owned regions.

But for NRIs in the UAE, the question isn't just "Should I invest in emerging markets?" It's "What's the smartest way to access this growth while managing tax, currency, and regulatory complexity?"

Emerging market funds can be part of your portfolio, but they shouldn't be the foundation. Get your basics right first-safe, tax-efficient products that give you peace of mind. Then add emerging market exposure if it aligns with your goals and risk tolerance.

At Belong, we've built an entire platform to simplify these decisions for NRIs. From USD fixed deposits to alternative investment funds, we focus on what actually works for global Indians, not just what's trendy.

Ready to make smarter investment decisions? Join our WhatsApp community of 5,000+ NRIs who share insights, ask questions, and learn together: Join Here.

Download the Belong App to explore GIFT City investments, compare FD rates, and access tools built specifically for NRIs: Download Now.

Also Read - GIFT City vs Regular Indian Mutual Funds

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Disclaimer: This article is for informational purposes only and should not be considered as investment advice. Mutual fund investments and emerging market funds are subject to market risks. NRIs should consult with SEBI-registered investment advisors and tax professionals before making investment decisions. Tax laws are subject to change, and individual circumstances may vary.