No international mutual funds left for fresh SIPs after Baroda BNP Paribas Aqua FoF closure: What investors can do now?

Indian investors looking to start a fresh SIP in international funds have run out of options. Baroda BNP Paribas Aqua FoF, the last international fund still accepting new SIP registrations and lump sum investments, stopped taking fresh investments on 23 July.

This means no international mutual fund scheme is currently open for new SIPs, according to Value Research.

However, existing investors need not worry. Those who already have a SIP running in the international funds will continue to see their instalments processed as usual. The restriction applies only to starting new investments.

The closure of international funds is linked to India’s overseas investment limits. As mentioned by Value Research, the mutual fund industry has a combined limit of $7 billion for investing in foreign securities and a separate $1 billion limit for overseas ETFs.

In January 2022, the industry crossed the foreign securities limit, following which the SEBI froze each fund house’s overseas investment capacity at the level available on 1 February, 2022.

This means fund houses cannot increase their overseas exposure beyond that frozen limit, even if investor demand rises.

As global markets recovered and overseas holdings increased, several fund houses started nearing their permitted limits. To avoid breaching the cap, they began restricting fresh investments into international funds.

However, funds can reopen if their overseas holdings fall below the allowed level due to factors such as market declines, currency movements or investor redemptions. However, there is no fixed timeline for when that may happen.

The shutdowns have happened gradually. On 10 July, Value Research reported that 11 international funds had either stopped or were about to stop accepting fresh SIP registrations.

PGIM closed its three international funds, and Franklin Templeton closed two schemes on 9 July. Edelweiss shut its six international fund offerings on 10 July.

That left only Baroda BNP Paribas Aqua FoF open for new investments, a window that closed on 23 July.

With international mutual funds unavailable, investors may look at Indian-listed international ETFs as an alternative. These ETFs track overseas markets and can be bought and sold on stock exchanges like regular shares.

Examples include Mirae Asset Hang Seng TECH ETF, Motilal Oswal Nasdaq Q50 ETF, and Nippon India ETF Hang Seng BeES. However, these ETFs are currently trading at a significant premium to their NAV, with some commanding premiums as high as 20%.

For example, if an ETF trades at a 20% premium to its NAV, an investor effectively pays ₹120 for assets worth ₹100.

These ETFs stopped creating new units after reaching their overseas investment limits in April 2024. Since the supply of units became limited while investor demand continued, market prices moved above the actual value of the underlying assets.