No international mutual fund open for subscription now after Baroda BNP Paribas Aqua FoF halts fresh investments. What should investors do?

Indian investors looking to start a fresh SIP in international mutual funds no longer have any options. Baroda BNP Paribas Aqua Fund of Fund (FoF), the last international mutual fund scheme accepting fresh SIPs and lump sum investments, suspended new investments on July 23.

As a result, no international mutual fund scheme is currently open for fresh SIP or lumpsum investments. The restriction applies to fresh SIP registrations and new lumpsum investments.

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According to an addendum by Baroda BNP Paribas Mutual Fund, to avoid potential breach of limits, Baroda BNP Paribas Asset Management decided to temporarily suspend the sale of units and acceptance of fresh subscriptions in the scheme.

The fund house also informed that lumpsum subscriptions (including switch-ins into the scheme), fresh registrations of Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) into the scheme are not accepted with effect from July 23.

However, instalments under existing SIPs/STPs registered on or before July 22, 2026, switch-outs, redemptions, fresh registration of Systematic Withdrawal Plans (SWPs), instalments of existing SWPs where the scheme is the source scheme, and intra-scheme switches (Regular to Direct Plan and vice versa) and intra-plan switches (Growth to IDCW and vice versa) will have no impact.

It further said that the aforesaid suspension is temporary in nature. The AMC shall review the available overseas investment headroom from time to time and shall resume acceptance of subscriptions in the scheme upon availability of adequate headroom.

In the second week of this month, Edelweiss Mutual Fund said it is nearing the overseas investment limit allowed for mutual funds under the industry-wide cap introduced on February 1, 2022. As a result, it has stopped accepting fresh SIPs and other investments in select international funds. PGIM India Mutual Fund and Franklin Templeton Mutual Fund also suspended fresh investments in some of their international schemes after approaching the same regulatory limit.

These restrictions are a result of SEBI's overseas investment limits for mutual funds. Indian mutual funds operate under an industry-wide overseas investment cap, and once fund houses approach these limits, they temporarily stop accepting fresh inflows into international schemes until investment headroom becomes available.

In February 2022, the regulator asked fund houses to stop accepting fresh investments in international schemes after the industry-wide overseas investment limit was exhausted. Since then, most fund houses have either suspended lumpsum investments, SIPs, or both in their international mutual fund schemes.

Shivam Pathak, CFP and Founder of Asset Elixir told ETMutualFunds that investors should avoid making hasty decisions. For fresh allocations, they can consider the LRS route, GIFT City products, or simply continue investing in Indian equities. While international diversification remains an important part of a long-term portfolio, investors can continue building wealth through domestic equities for now. Once overseas investment limits are revised, they can gradually increase their international allocation.

What are the alternatives to have global exposure?
As access to international mutual funds remains restricted in some cases, investors are exploring other ways to gain overseas exposure. There are other possible options to global exposure which includes through the LRS route, GIFT City leaving investors confused which one to pick for investment in case the limits are not increased.

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Liberalised Remittance Scheme (LRS)
In budget 2025, Finance Minister Nirmala Sitharaman announced an increase in the threshold for tax collected at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) from Rs 7 lakh to Rs 10 lakh which market experts then believed will reduce the upfront tax burden for investors remitting funds abroad.

GIFT City
While investing in GIFT City, one can invest using their existing Indian bank account. No separate foreign account is needed. No foreign tax filing is applicable when investing through GIFT City.

If one is investing through GIFT City, IFSC route gives you access to global markets without being limited by domestic mutual fund overseas limits. This option is designed for retail investment, Resident Indians can invest via the LRS route starting with USD 5000 ticket size.

There is no lock-in, and redemptions will be processed within seven business days and Gift City retail funds combine global access with a transparent, mutual fund-style cost structure. Gift City-based retail funds are a structurally optimized route - tax efficient, free from mutual fund caps, compliance-light, and institutionally designed for seamless global access and are structurally optimized to mitigate country-specific risks and economic cycles.

Global ETFs
Global ETFs are another way to gain international exposure. Unlike international mutual funds, exchange-traded funds (ETFs) listed on stock exchanges are driven by market demand and supply and are generally not affected by the overseas investment limits applicable to mutual funds.

However, investors should pay close attention to the price at which they buy these ETFs, as they may sometimes trade at a premium to their underlying value. Last year, several global index ETFs were trading at premium.

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According to Shivam Pathak, the overseas investment cap has limited fresh investments and new fund launches, restricting investors' access to international markets and investors looking for global diversification can consider international ETFs through the LRS route or wait for investment limits to reopen.

Pathak further said that the long-term outlook for global equities remains constructive and the US is likely to continue benefiting from AI and technology-led growth, while Europe and parts of Asia offer attractive valuation opportunities and a diversified global allocation can help reduce concentration risk and strengthen long-term portfolios.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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