With the Indian rupee stabilising against the US dollar, following government as well as Reserve Bank of India measures to strengthen the foreign exchange inflows, Association of Mutual Funds of India (AMFI) has reiterated the need to relook at the $7 billion limit that has been in place for over a decade on mutual funds’ overseas investments.

Over the past 12 months, there has been a massive rally in several global markets from Korea to Taiwan to United States, as investors rushed to invest into AI (artificial intelligence) and related ideas. However, most Indians missed out on this opportunity given that many mutual funds have restricted or completely closed inflows into their international schemes due to the regulatory limit.

Mutual funds can cumulatively invest only $7 billion overseas, with a separate $1 billion cap on ETFs (exchange traded funds) investing internationally. Fund houses have for long argued that this cap needs to be raised. But, with the rupee depreciating against the US dollar, the cap has remained firmly in place.

Therefore, now with the rupee stabilising and the RBI’s special window to raise FCNR (B) deposits expected to garner good response from non-resident Indians, AMFI is likely to once again raise the pitch for lifting the cap.

Market analysts are currently expecting that the special window allowing banks to raise FCNR (B) deposits of 3-5 year maturities will help attract around $30-50 billion or more in inflows. This should bolster India’s forex reserves and ease the pressure on rupee further.

“We are taking it up on a regular basis with the RBI, Government of India, SEBI, requesting them that this particular cap needs to be increased to enable investors to diversify their investments. So, $7 billion, and $1 billion of ETFs, that is what the cap has been. Hopefully, after this FCNR (B) scheme is completed, we will go and pitch again,” Venkat Chalasani, CEO of AMFI, told Business Today.

Indians wanting to invest in overseas equity markets can also invest via LRS (liberalised remittance scheme), where there is a cap of $250,000 per year per resident individual. There are platforms that offer investing in stocks, particularly in the US and you could also invest through outbound fund mechanisms available in the International Financial Services Centre, in GIFT City, Gujarat.

But, the investment route via LRS is not as easy as investing in a mutual fund. Also, the $5,000 minimum requirement to invest in retail outbound funds through GIFT can also be a hurdle for common investors.

Importantly, Chalasani points that money remitted via LRS may not necessarily come back to India, while money invested in international schemes of mutual funds has to be redeemed back domestically only. He also pointed that each year sizeable amount of flows also come in from NRIs investing in to mutual funds, which also needs to be considered.

“We have told very clearly that there is a distinction between LRS and mutual fund. In case of LRS, the money goes, it may not come back. If you are investing in mutual fund, it is 100 per cent going to come back in the country. So, there should be relaxation on the cap,”

The mutual fund industry has seen strong inflows in the last few years as more Indians have taken up investing in the stock market. The net assets under management (AUM) of the mutual fund industry was at ₹81.58 lakh crore as of May 31, 2026. However, equity mutual funds saw a sharp 40 per cent month-on-month decline in flows at ₹22,908 crore in May, from ₹38,440 crore in April, according to AMFI data amid the equity market volatility in the backdrop of the war in West Asia.

Chalasani said that there had been some reduction in gross inflows and some redemptions had gone up. But, he is not too worried about the decline in flows, just yet.

“It is a basic human nature that whenever there is some volatility, people will hold back their cash. While, the ups and downs will be there in the market, we keep telling everyone that you have to believe in the long term growth story,” he noted.

Chalasani stresses that while there may be near-term headwinds, the long-term growth story remains intact.

“The geopolitical tensions continue to create worries for us, the crude oil prices, the inflation factor, the FII outflows, these are temporary short-term headwinds. But then the long term growth story, the tailwinds that we always talk about - the stable government, your demographic dividend, your consumption - am sure will overcome the headwinds that we have and take the economic growth to normalcy, but we will have to wait and watch for some time,” he said.

Chalasani points that even as the Indians investing in mutual funds has grown over the last few years, there is a huge untapped gap. According to a SEBI investor survey in 2025, 53 per cent of the respondents were aware of mutual funds or ETFs. However, only 6.7 per cent of the households reported holding MFs or ETFs.

While campaigns like Mutual Funds Sahi Hain have helped in raising the awareness, Chalasani says the underlying objective now is to see how the awareness can be converted into action.

“There are multiple steps we are doing. We have adopted certain states like Odisha, Bihar, Andhra Pradesh and Meghalaya. There we are doing intensive training programmes. Through regional media, we are trying to reach out to people in local languages. We enter into tie ups with schools, we are reaching out to gig workers, even self-help groups etc. We are trying to see how we can expand our reach to investors,” he stated.

The regulator has also taken various steps such as the incentive scheme for MF distributors in beyond 30 cities (B-30), or incentives for onboarding new women investors, which should ensure more number of people come into the MF industry.