Despite more than a year of discussions between the mutual fund industry and regulators, a resolution on re-distributing the limits on overseas investments remains elusive, leaving newer asset management companies (AMCs) in a regulatory deadlock. While established peers continue to have some exposure to global funds, newer entrants have been unable to launch even a single global fund, facing continued uncertainty amid a lack of clarity from both the markets and the banking regulator.

This persistent stalemate stems from caps on overseas investments imposed by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi). Once these $8 billion aggregate ceilings were breached in 2022 and 2024, fresh allocations were halted. This effectively locked the market in favour of first-movers. AMCs that joined the race early still hold individual investment limits and can use available headroom from redemptions to launch new products. Newer players, meanwhile, are left with zero allocation.

The divide has created what industry officials call an "unfair" structure. While Sebi a year back acknowledged that 20 of India's 44 AMCs are in a "comparably disadvantageous position”, a formal representation made by the Association of Mutual Funds in India (Amfi) in March 2025 has yet to produce a plan to rationalize these unutilized limits.

Currently, the RBI allows the mutual fund industry to invest up to $7 billion in overseas non-exchange traded funds (ETF) and $1 billion in global ETFs. Simultaneously, Sebi permits $1 billion for non-ETF investments and $300 million for ETFs per AMC, with a $50 million carve-out created for new AMCs intending to launch global funds. There are 51 AMCs in the country.

Meanwhile, the US-Iran war has brought the Indian rupee down to several all-time lows and foreign investors continue to sell Indian equities, making it unlikely that the RBI will raise its limits anytime soon. Sandeep Bagla, CEO of Trust Mutual Fund, said, "Indian capital markets are undergoing a volatile time paired with FPI outflows. The RBI may not want to make changes to the existing limits for feeder funds as rupee may further depreciate if more capital leaves the country. Further outflow of funds may also have a negative impact on market performance and sentiment.”

Regulatory standstill

Amfi made a formal representation to the Securities and Exchange Board of India (Sebi) in March 2025. In a reply seen by Mint, Sebi noted that 20 of the 44 active mutual funds have invested in overseas markets, putting the others at a “comparably disadvantageous position.” Sebi stated that “a substantial limit remains available for utilization which has created a headroom for overseas investment that may be utilized by the MFs which are currently not allowed to invest in overseas markets.”

While the market regulator asked Amfi for ways to rationalize these limits to accommodate new AMCs, officials added that nothing has been done. “Sebi is looking to rationalize limits for international feeder funds as newer AMCs may not get a chance to launch them in the current framework. They are relooking at the entire logic to be fair to all AMCs,” said an official from an AMC with an international fund.

Sebi also said in its reply that as of 28 March 2025, only 81% of the industry limit was still available for overseas investments other than ETFs.

Emails sent to Sebi, Amfi, and the RBI remained unanswered.

Structural advantage

This freeze created a structural advantage for older funds that retained built-out portfolios, leaving those yet to enter the space with little to no allocation. In some cases, older funds had overseas exposure exceeding $1 billion as fewer global schemes were launched when the limits were given initially, and the funds that started first had ample headroom within the overall limit.

According to a Mint analysis of fact sheets and data from Value Research, PPFAS Mutual Fund and Motilal Oswal Mutual Fund held overseas assets worth $1.49 billion and $1.04 billion respectively as of February end. Meanwhile, Kotak Mahindra AMC launched the Kotak Quality Overseas Equity Omni FOF, which closed its NFO in March. Nilesh Shah, managing director at Kotak Mahindra AMC, told The Fynprint on March 15 that the fund currently has ₹800 crore of leftover limit to invest overseas.

Other established offerings, such as Nippon India Taiwan Equity Fund, Axis Greater China Equity Fund of Fund, and Franklin U.S. Opportunities Equity Active Fund of Funds, also have lump sum investments open as per The Fynprint, highlighting the headroom available only to incumbents.

The lack of global access has material consequences. “Without global diversification, portfolios remain concentrated in Indian equities. Recent market performance shows that even two-year SIP returns have turned negative, and three-year returns may follow if corrections continue. If global diversification had been available, outcomes would likely have been better,” said Pramod Gubbi, co-founder at Marcellus Investment Managers.

In the absence of regulatory change, fund houses are exploring alternative routes, such as GIFT City. Anil Ghelani, head of passives at DSP Mutual Fund, pointed out that GIFT City funds do not have a blanket limit but rather a per-person limit on investments outside India of $250,000 per annum under the liberalised remittance scheme (LRS). “A policy change may happen whenever it has to, till then GIFT City can serve as a better route,” Ghelani added.

Despite more than a year of discussions between the mutual fund industry and regulators, a resolution on re-distributing the limits on overseas investments remains elusive, leaving newer asset management companies (AMCs) in a regulatory deadlock. While established peers continue to have some exposure to global funds, newer entrants have been unable to launch even a single global fund, facing continued uncertainty amid a lack of clarity from both the markets and the banking regulator.

This persistent stalemate stems from caps on overseas investments imposed by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi). Once these $8 billion aggregate ceilings were breached in 2022 and 2024, fresh allocations were halted. This effectively locked the market in favour of first-movers. AMCs that joined the race early still hold individual investment limits and can use available headroom from redemptions to launch new products. Newer players, meanwhile, are left with zero allocation.

The divide has created what industry officials call an "unfair" structure. While Sebi a year back acknowledged that 20 of India's 44 AMCs are in a "comparably disadvantageous position”, a formal representation made by the Association of Mutual Funds in India (Amfi) in March 2025 has yet to produce a plan to rationalize these unutilized limits.

Currently, the RBI allows the mutual fund industry to invest up to $7 billion in overseas non-exchange traded funds (ETF) and $1 billion in global ETFs. Simultaneously, Sebi permits $1 billion for non-ETF investments and $300 million for ETFs per AMC, with a $50 million carve-out created for new AMCs intending to launch global funds. There are 51 AMCs in the country.

Meanwhile, the US-Iran war has brought the Indian rupee down to several all-time lows and foreign investors continue to sell Indian equities, making it unlikely that the RBI will raise its limits anytime soon. Sandeep Bagla, CEO of Trust Mutual Fund, said, "Indian capital markets are undergoing a volatile time paired with FPI outflows. The RBI may not want to make changes to the existing limits for feeder funds as rupee may further depreciate if more capital leaves the country. Further outflow of funds may also have a negative impact on market performance and sentiment.”

Regulatory standstill

Amfi made a formal representation to the Securities and Exchange Board of India (Sebi) in March 2025. In a reply seen by Mint, Sebi noted that 20 of the 44 active mutual funds have invested in overseas markets, putting the others at a “comparably disadvantageous position.” Sebi stated that “a substantial limit remains available for utilization which has created a headroom for overseas investment that may be utilized by the MFs which are currently not allowed to invest in overseas markets.”

While the market regulator asked Amfi for ways to rationalize these limits to accommodate new AMCs, officials added that nothing has been done. “Sebi is looking to rationalize limits for international feeder funds as newer AMCs may not get a chance to launch them in the current framework. They are relooking at the entire logic to be fair to all AMCs,” said an official from an AMC with an international fund.

Sebi also said in its reply that as of 28 March 2025, only 81% of the industry limit was still available for overseas investments other than ETFs.

Emails sent to Sebi, Amfi, and the RBI remained unanswered.

Structural advantage

This freeze created a structural advantage for older funds that retained built-out portfolios, leaving those yet to enter the space with little to no allocation. In some cases, older funds had overseas exposure exceeding $1 billion as fewer global schemes were launched when the limits were given initially, and the funds that started first had ample headroom within the overall limit.

According to a Mint analysis of fact sheets and data from Value Research, PPFAS Mutual Fund and Motilal Oswal Mutual Fund held overseas assets worth $1.49 billion and $1.04 billion respectively as of February end. Meanwhile, Kotak Mahindra AMC launched the Kotak Quality Overseas Equity Omni FOF, which closed its NFO in March. Nilesh Shah, managing director at Kotak Mahindra AMC, told The Fynprint on March 15 that the fund currently has ₹800 crore of leftover limit to invest overseas.

Other established offerings, such as Nippon India Taiwan Equity Fund, Axis Greater China Equity Fund of Fund, and Franklin U.S. Opportunities Equity Active Fund of Funds, also have lump sum investments open as per The Fynprint, highlighting the headroom available only to incumbents.

The lack of global access has material consequences. “Without global diversification, portfolios remain concentrated in Indian equities. Recent market performance shows that even two-year SIP returns have turned negative, and three-year returns may follow if corrections continue. If global diversification had been available, outcomes would likely have been better,” said Pramod Gubbi, co-founder at Marcellus Investment Managers.

In the absence of regulatory change, fund houses are exploring alternative routes, such as GIFT City. Anil Ghelani, head of passives at DSP Mutual Fund, pointed out that GIFT City funds do not have a blanket limit but rather a per-person limit on investments outside India of $250,000 per annum under the liberalised remittance scheme (LRS). “A policy change may happen whenever it has to, till then GIFT City can serve as a better route,” Ghelani added.