Why are mutual funds stopping international SIPs? Here's how SEBI's overseas investment cap works

Indian investors looking to start a fresh systematic investment plan (SIP) in an international mutual fund are finding their options rapidly shrinking. Several fund houses, including Edelweiss Mutual Fund, PGIM India Mutual Fund and Franklin Templeton Mutual Fund, have recently suspended fresh SIP registrations and lump sum investments in select international schemes, citing regulatory limits on overseas investments.

The restrictions have little to do with the performance of these funds. Instead, they stem from an industry-wide overseas investment cap introduced by market regulator SEBI in 2022.

What is the overseas investment cap?

Indian mutual funds are allowed to invest in overseas securities, enabling domestic investors to gain exposure to global markets through international mutual fund schemes. However, these investments are subject to an industry-wide overseas investment limit prescribed by SEBI.

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In February 2022, after the industry exhausted the available overseas investment headroom, SEBI directed mutual fund houses to stop accepting fresh investments into international schemes that would increase overseas exposure beyond the prescribed limit. Since then, fund houses have periodically suspended fresh inflows whenever they approach their allocated limits.

As a result, while existing investments remain unaffected, many schemes have stopped accepting fresh SIPs, lump sum investments or both until additional investment capacity becomes available.

Why are fund houses suspending SIPs now?

The latest restrictions follow a sharp increase in investor demand for global diversification over the past few years. Overseas equity funds tracking markets such as the US, Europe and global thematic sectors have attracted significant inflows, pushing several asset management companies close to their regulatory ceilings.

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Last week, Edelweiss Mutual Fund said it was nearing the overseas investment limit available under the industry cap and therefore suspended fresh SIP registrations and other investments in select international funds. Similar announcements were made by PGIM India Mutual Fund and Franklin Templeton Mutual Fund.

With these suspensions, Baroda BNP Paribas Aqua Fund of Fund (FoF) is currently among the very few international mutual fund schemes continuing to accept both fresh SIPs and lump sum investments.

What are the alternatives?

Investors seeking international diversification still have a few options outside traditional international mutual funds.

One route is the Liberalised Remittance Scheme (LRS), under which resident Indians can invest directly in overseas securities and funds. In the Union Budget 2025, the government 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.

Another increasingly popular option is GIFT City-based retail funds, which provide access to global markets without being constrained by the domestic mutual fund overseas investment cap. These funds also eliminate the need for a foreign bank account and offer a mutual fund-style investment structure.

Investors can also consider 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 applicable to mutual funds. However, investors should check whether the ETF is trading at a significant premium to its underlying net asset value before investing.

Until SEBI revises the overseas investment limit or additional headroom becomes available, fresh investment opportunities in international mutual funds are likely to remain limited, making alternative global investment routes increasingly important for Indian investors.