Indian mutual funds are currently facing significant restrictions on fresh investments in international schemes, primarily due to regulatory limits set by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). These limits include a total cap of $7 billion for the entire mutual fund industry to invest in foreign securities, a separate $1 billion limit for overseas Exchange Traded Funds (ETFs), and a maximum limit of $1 billion per Asset Management Company (AMC). These measures were put in place to safeguard India’s foreign exchange reserves and manage currency volatility. The industry largely exhausted the $7 billion limit for non-ETF overseas investments by early 2022, and the $1 billion limit for overseas ETFs was also nearly depleted, leading SEBI to direct mutual funds to halt accepting new inflows once these ceilings are reached.
As a consequence, major AMCs like PGIM India, Franklin Templeton, and Edelweiss have either suspended or severely restricted fresh inflows into their international schemes. More recently, some fund houses have even begun pausing existing Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs). For instance, PGIM India Mutual Fund temporarily suspended existing SIPs and STPs in three international schemes – PGIM India Global Equity Opportunities Fund of Fund, India Emerging Markets Equity FoF, and India Global Select Real Estate Securities FoF – starting August 7. Similarly, Edelweiss AMC closed fresh SIP registrations and paused existing SIPs and STPs from August 12 in several of its international funds, including ASEAN Equity, Greater China Equity, and US Technology funds. Overall, 28 international funds have stopped existing SIPs, in addition to many more that had already ceased new registrations.
This situation has created a challenging environment for Indian investors seeking global diversification through mutual funds. While existing investments remain unaffected, starting new SIPs or making lump-sum investments in most international schemes has become difficult or impossible. Baroda BNP Paribas Aqua Fund of Fund is one of the few international mutual fund schemes still accepting both fresh SIPs and lump-sum investments, and HSBC Mutual Fund has resumed fresh/additional investments in three overseas-focused schemes up to $2,000,000 per PAN per month. However, experts note that for most funds, overseas exposure is typically in the range of 10-15 percent, suggesting that investors might not always need funds with 100 percent overseas allocation for diversification. The main objective of these restrictions is to manage capital flows and maintain the stability of the Indian rupee.
For investors looking for alternatives, options include directly accessing overseas equities and ETFs through the RBI’s Liberalised Remittance Scheme (LRS), which allows resident individuals to remit up to $250,000 per financial year. Platforms like IBKR and Vested facilitate such direct investments, although they may involve additional costs and minimum investment requirements. Another avenue is investing in global exchange-traded funds (ETFs) listed on Indian exchanges, which are generally not subject to the same overseas investment restrictions as mutual funds. Additionally, the GIFT City structure allows both residents and Non-Resident Indians (NRIs) to invest in outbound funds, including MFs, PMS, and AIFs, within LRS limits for residents, though this option comes with its own set of paperwork, KYC processes, and limited fund choices.
