Indian investors looking to start fresh Systematic Investment Plans (SIPs) in international mutual funds are facing rapidly shrinking options. Several prominent fund houses, including Edelweiss Mutual Fund, PGIM India Mutual Fund, and Franklin Templeton Mutual Fund, have recently announced the suspension of new SIP registrations and lump sum investments in specific international schemes.
Why the Suspensions? SEBI's Overseas Investment Cap
These restrictions are not related to fund performance but are a direct consequence of an industry-wide overseas investment cap implemented by market regulator SEBI in February 2022. This cap limits the total amount Indian mutual funds can invest in overseas securities, which allows domestic investors to access global markets.
When the industry collectively neared its prescribed overseas investment limit in early 2022, SEBI directed fund houses to cease accepting fresh investments that would increase their global exposure beyond this ceiling. Since then, asset management companies have periodically suspended new inflows whenever their allocated limits are approached.
While existing investments in these international schemes remain unaffected, many have stopped accepting fresh SIPs, lump sum investments, or both, until additional investment capacity becomes available.
Increased Demand Pushes Funds to Limits
The latest wave of suspensions follows a significant surge in investor demand for global diversification over recent years. Overseas equity funds, particularly those tracking markets in the US, Europe, and various global thematic sectors, have attracted substantial inflows. This increased interest has pushed several asset management companies closer to their regulatory ceilings, triggering the current halts.
Edelweiss Mutual Fund, for instance, announced last week that it was nearing its overseas investment limit under the industry cap, leading to the suspension of fresh SIP registrations and other investments in selected international funds. PGIM India Mutual Fund and Franklin Templeton Mutual Fund have made similar announcements.
Currently, very few international mutual fund schemes, such as the Baroda BNP Paribas Aqua Fund of Fund (FoF), continue to accept both fresh SIPs and lump sum investments.
Alternatives for Global Diversification
For investors still seeking international market exposure, several alternative avenues exist outside traditional international mutual funds:
- Liberalised Remittance Scheme (LRS): Under the LRS, resident Indians can directly invest in overseas securities and funds. The Union Budget 2025 notably raised the threshold for Tax Collected at Source (TCS) on LRS remittances from ₹7 lakh to ₹10 lakh, reducing the upfront tax burden for smaller overseas investments.
- GIFT City-Based Retail Funds: These funds, operating from India's Gujarat International Finance Tec-City (GIFT City), offer access to global markets without being constrained by the domestic mutual fund overseas investment cap. They also eliminate the need for a foreign bank account and provide a mutual fund-like investment structure.
- Global Exchange-Traded Funds (ETFs) Listed on Indian Exchanges: Since ETFs trade on the stock exchange, they are generally not subject to the same overseas investment restrictions that apply to mutual funds. However, investors should always verify whether the ETF is trading at a significant premium to its underlying Net Asset Value (NAV) before investing.
Until SEBI revises the overseas investment limit or additional headroom becomes available within the existing cap, fresh investment opportunities in international mutual funds are likely to remain constrained. This makes exploring these alternative global investment routes increasingly important for Indian investors.