Here’s Why Indian Investors Face a Shrinking International Fund Menu Even As Global Markets Rally

Benchmark indices which reflect the health of the broader market have delivered negative returns in the first half of 2026. On a year-to-date (YTD) basis, the Nifty 50 and the 30-share Sensex have slipped 6.56 per cent and 8.09 per cent, respectively.

On the other hand, other regional indices like South Korea’s KOSPI and Taiwan Stock Exchange have rallied 86.82 per cent and 58.63 per cent, respectively.

The relatively higher returns elsewhere have made investors look beyond India and diversify their portfolios by investing in foreign markets and capitalise on the rallies seen there. However, for investors sitting in India, the options are limited. 

According to a recent report by Value Research, out of 66 international mutual funds tracked by the platform, 54 no longer accept fresh money. Only 12 international funds are open to new inflows. This severely limits the investing options for mutual fund investors who are looking to gain exposure to foreign markets.

Why Are Fund Houses Limiting Inflows

As options to diversify become scarce, investors are left wondering why fund houses are limiting investments in international schemes. The key reason behind this happens to be the cap by Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) on the domestic mutual fund industry for foreign investing. Notably the regulators have capped the maximum amount at $7 billion at the industry level along with a separate $1 billion limit for overseas exchange-traded funds (ETFs).

These limits were established in 2008, and in 2022, the industry breached the threshold. Since then, the overall ceiling has been frozen. A fund house is permitted to accept fresh capital only after freeing up available headroom beneath its allocation.

Thus, as a part of the rule, fund houses get headroom only when existing investors redeem their units or when market corrections shrink the value of overseas holdings. To prevent this, fund houses ration inflows into foreign securities by capping systematic investment plans (SIPs) and halting lump sum investments entirely.

What Can Investors Do?

Investors in India who wish to allocate capital overseas, can still do so despite the cap. Among the 12 funds mentioned in the report only the Baroda BNP Paribas Aqua fund accepts lump sum investments without a cap. On the other hand, Franklin Asian Equity and Franklin US Opportunities have capped new SIPs to a maximum of Rs 50,000 per month.

Three schemes by PGIM mutual fund offer three funds covering global growth, emerging markets, and global real estate, capping fresh investments at Rs 50,000 per day. According to the report, Edelweiss operates six open funds spanning US technology, Europe, US value, emerging markets, Southeast Asia, and Greater China. All six Edelweiss schemes enforce a strict ceiling of Rs 5,000 per month for new inflows.

Alternatively, retail investors can invest through the GIFT City route. As funds established in Gujarat International Finance Tec-City are regulated by the International Financial Services Centres Authority rather than Sebi, they do not fall under the $7 billion industry cap.

However, retail investors need to use the RBI’s Liberalised Remittance Scheme (LRS) to access them.

Amfi’s Bid To Relook The Cap

The Association of Mutual Funds in India (Amfi) recently reiterated the urgent need to relook at the overseas investment limit. The industry body is preparing a fresh appeal to regulators to raise the near two decade old cap. The industry body has pointed out that India’s foreign exchange reserves are much stronger today, and thus, the cap needs to be revised.

If regulatory bodies agree to raise the ceiling, domestic mutual fund investors can benefit potentially from more access to a variety of global funds, thus allowing retail participants to build diversified portfolios. However, till the cap is revised, investors will have to rely on the existing schemes, which have the regulatory breathing room, to accept their capital or navigate the foreign currency requirements of offshore routes.