International Fund SIPs Halted: Impact on Diversification

Your options for new international mutual fund SIPs just got much smaller, impacting how you diversify globally.

• PGIM, Franklin Templeton, and Edelweiss have stopped new Systematic Investment Plans (SIPs) in 11 international funds this week.

• Fund houses are hitting the Reserve Bank of India’s (RBI) overseas investment limits, which were largely exhausted industry-wide in early 2022.

• Existing international SIPs will continue, but new investors only have one dedicated international fund option left for fresh registrations.

Investors looking to start new Systematic Investment Plans (SIPs) in international mutual funds face significantly reduced options this week. PGIM India Mutual Fund, Franklin Templeton, and Edelweiss Mutual Fund have collectively suspended fresh registrations in 11 overseas schemes. These suspensions, which began on July 9 and 10, mean that only one dedicated international fund currently remains open for new SIPs.

These restrictions are not a reflection of fund performance but rather a consequence of the Reserve Bank of India’s (RBI) overseas investment limits. The Indian mutual fund industry has a collective ceiling of $7 billion for overseas securities, with an additional $1 billion for overseas exchange-traded funds (ETFs). Individual asset management companies (AMCs) also face a $1 billion limit each. The industry-wide limit was largely utilized by early 2022, leading fund houses to operate within their remaining allocated capacity.

For many investors, this development directly impacts their strategy for global diversification. If you already have an existing SIP in these international schemes, your instalments will continue without interruption. However, those planning to initiate new SIPs, Systematic Transfer Plans (STPs), or lump sum investments into international funds will find choices extremely limited, with Baroda BNP Paribas Aqua Fund of Fund being the sole remaining option for fresh registrations.

The current situation highlights the constraints on accessing global markets through Indian mutual funds. While existing investments are safe, the shrinking availability of new international fund options underscores the need for regulators to potentially reassess these overseas investment limits. Until then, investors seeking global exposure might need to explore alternative avenues or await regulatory revisions.

ONE THING TO CONSIDER TODAY

Now might be a good time to review your portfolio’s overall international diversification strategy and consider if direct international investing or other global exposure options align with your financial goals, rather than solely relying on Indian fund-of-funds.