US H1-B Policy Adds Pressure as Tech Funds Lose 4% in 1 Year

Technology mutual funds in India are facing challenges due to the H1-B policy. Over the last year, tech-based mutual funds have lost an average of 4.40%, largely due to weak global demand. Now, a dramatic change in the U.S. H1-B visa program is expected to make things worse, putting additional pressure on IT exporters and investors investing in the IT sector.

On September 21, 2025, President Donald Trump announced significant changes to the H-1 B visa system. The White House explained that this action aimed to fix the widespread misuse of the visa program, where U.S. workers were replaced by lower-paid foreigners, especially in technology jobs.

The new rule requires employers filing for new H1-B visas to pay a one-time fee of $100,000 per application. This rule is effective immediately and will stay in force for 12 months, with the possibility of renewal after a review by U.S. federal agencies. The government clarified that this fee is not annual and will not affect existing visa holders or renewals. However, for companies sending employees to the U.S., like Indian IT service providers, this added cost per worker could highly impact profit margins.

Indian technology funds were underperforming even before this shock. Analysts point out that the global economic slowdown, especially in the U.S. and Europe, has reduced corporate spending on IT services. This has impacted the earnings of big Indian IT firms such as Infosys, TCS, Wipro and Tech Mahindra, which in turn has weighed on the performance of technology-focused mutual funds.

Pallav Agarwal, a Certified Financial Planner at Bhava Services LLP, explained, “Indian software companies faced multiple challenges over the past year. The economic slowdown in the U.S. and Europe led to reduced IT spending, hitting business growth and stock valuations. The sudden increase in H1-B visa costs will now hurt profits even further.”

Rajesh Minocha, founder of Financial Radiance, highlights a dual issue by saying, "Weak global IT spending and rising costs are already impacting tech funds. Additionally, the strong U.S. dollar & uncertain budgets add to the situation. He warns that the new H1-B visa policy may reduce profits for Indian exporters in the short term. Still, it could ultimately drive companies to depend more on remote & digital operations from India, enhancing their competitiveness in the long run".

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Performance of the Tech Funds

Only two out of nine tech mutual funds have delivered positive returns in the past year. SBI Technology Opportunities Fund returned 2.10%, while Edelweiss Technology Fund gained 1.30%. The rest were in the red, with Quant Teck Fund losing the most (-11.76%) and Franklin India Technology Fund limiting losses to just -2.90%.

Performance was even weaker over the nine months. All 12 mutual funds operating during that time posted negative returns, with an average loss of 6.85%. Tata Digital India Fund was the worst (-14.01%) and Motilal Oswal Digital India Fund lost the least (-1.28%).

However, the near-term performance tells a more hopeful story:

In the past one month, tech funds gave an average return of 4.29%.
Over three months, they posted a smaller gain of 2.23%.
Over six months, performance was better, with an average return of 13.90%.

Zooming out further shows the sector's long-term strength. Over three years, tech funds delivered an average of 18.93% and over five years, they returned a remarkable 20.41%. This highlights how market cycles can hurt in the short run, but the sector continues to remain a long-term growth story.

What Investors Should Do?

For many investors, the key question is whether they should stay invested in tech funds despite the short-term worries about visa rules and the global slowdown.

Agarwal suggests a disciplined strategy: “Investors should continue systematic investments (SIPs) or staggered transfers (STPs). In fact, corrections often open opportunities. Investors can also consider investing a small lump sum if panic in the market drives prices lower. But the most important point is to stay invested for the long-term and not panic.”

Minocha agreed but stressed that technology sector funds should only make up a small part of an investor's portfolio. Instead, diversifying with flexi-cap or multi-cap funds can reduce risks. He also suggested continuing SIPs in tech funds to average entry costs and take advantage of lower valuations.

Both experts highlight that pausing SIPs during downturns has historically been a poor decision. Investors who maintain discipline are usually rewarded when the market turns and recovers quickly, thanks to lower purchase costs in the bearish phases.

Also Read: Best SIP Plan for 20 Years: With Equity, Debt & Hybrid Funds

Why Tech Mutual Funds are Riskier?

Sectoral or thematic funds, like those focused on technology, tend to be high risk because they invest primarily in one sector. This makes their performance highly correlated to the ups and downs of that specific industry. In the case of tech funds, their fate depends almost entirely on how Indian IT services companies perform.

These IT firms themselves rely heavily on global demand, primary spending cycles by U.S. and European companies, currency exchange rates and now, policy-related hurdles around H1-B visas. For this reason, sector-focused funds are generally recommended only for experienced investors with higher risk tolerance and deep knowledge about the sector. They are not a safe choice for beginners or for those with short-term horizons.

While the H1-B visa increment will cut profits for Indian IT service exporters, experts believe it could encourage some long-term structural changes. With costs rising for sending workers to the U.S., Indian IT firms may increase reliance on remote projects and digital service delivery right from India.

This trend might align with the ongoing global shift to cloud services, automation, AI and working remotely. Over time, these changes might enhance the industry's international competitiveness by making remote delivery models a standard thing.

For investors, the key is patience. Short-term bumps are not unusual in sector-based investments. Still, historically, the Indian IT industry has proven resilient, reinventing itself across cycles of outsourcing doubt, visa restrictions, currency volatility and shifts in client demand.

Key Takeaways for Investors

Tech funds have lost 4.40% over the past year but delivered strong returns over the 3–5 year period.
The U.S. H1-B visa fee increase to $100,000 per petition risks reducing profits for Indian IT exporters.
Disciplined investments like SIP and STP remain the best strategy for avoiding volatility.
Flexi-cap and multi-cap funds should be the primary portfolio focus, with tech funds as a smaller satellite holding.
Investors should not panic, as downturns often present an opportunity for growth at attractive rates.

The outlook for tech funds is uncertain because of global economic challenges and clients' tight budgets. However, India's IT sector has shown strength, making it a good option for long-term investors. It is important to be patient and careful and to diversify your mutual fund investments.