Indian mutual fund houses have stopped accepting new SIP registrations for international schemes as the industry has exhausted its $7 billion overseas investment limit. While current SIPs will continue, investors cannot start new plans until the regulatory ceiling is increased or existing capacity opens up through redemptions.
Detailed Coverage
Indian investors looking to start new Systematic Investment Plans (SIPs) in international mutual funds are currently facing a industry-wide freeze. Following the recent move by Baroda BNP Paribas Mutual Fund, most fund houses have suspended fresh SIP registrations for their overseas-focused schemes. This decision comes as the collective investment limit for the mutual fund industry, monitored by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), has been fully utilized.
Impact of the $7 Billion Ceiling
For over three years, the Indian mutual fund industry has been operating under a strict collective ceiling of $7 billion for overseas investments, plus an additional $1 billion specifically for overseas exchange-traded funds (ETFs). These limits were first reached in early 2022. Because fund houses are prohibited from exceeding these thresholds, they have been forced to manage inflows carefully to ensure compliance.
Most fund houses initially responded to the limit by stopping large one-time investments. As the capacity remained tight, many gradually phased out new SIP registrations to prevent further breaches of the regulatory limit. Importantly, investors who already have active SIPs in these funds will see their investments continue as usual. The current restriction applies only to the registration of new SIPs.
What Investors Should Monitor
There is currently no clear timeline for when these SIPs might resume. Fund houses can only reopen these schemes if existing investors sell their units, creating available room within the $7 billion limit, or if the RBI and SEBI announce an increase in the total allowed overseas investment. Investors should track official notices from their respective mutual fund houses for updates on when or if new registrations might become possible.
Alternatives for Global Exposure
Investors who still wish to maintain or start global exposure have limited options. International ETFs continue to be listed on Indian stock exchanges. However, when demand for these ETFs is high and the fund house cannot create new units due to the limit, these ETFs may trade at a price higher than their actual net asset value (NAV). Investors considering this route should verify the market price against the NAV to avoid paying an unnecessary premium.
Another alternative is direct investment in overseas stocks or foreign mutual funds through the Liberalized Remittance Scheme (LRS). This facility allows individuals to remit money abroad directly, subject to the overall annual limits set by the RBI. Before choosing this path, investors should consider the administrative process and potential currency conversion costs. Financial planners generally suggest that investors should not disrupt their long-term asset allocation strategy solely because of the temporary suspension of new SIPs in international funds.