Foreign liabilities of MFs fell 18% to $9.6 bn in FY201 min read . Updated: 21 Oct 2020, 08:45 AM IST
Decline in the value of investments from NRIs due to covid could be the key reason
Mutual funds in India saw their net foreign liabilities drop by 18% in FY20, a Reserve Bank of India (RBI) report published on Tuesday showed. Much of it, however, may have been the result of the decline in the value of investments from non-resident Indians (NRIs) in March, after the covid-19 outbreak hit the markets.
Since then, the markets have recovered close to their all-time highs, and foreign assets of mutual funds have also increased, albeit from a low base, as domestic investors parked more money with mutual funds investing outside India.
Historically, foreign liabilities of mutual funds (on NRI investments) far exceeded their foreign assets.
The foreign liabilities of mutual funds fell from $12.4 billion in March 2019 to $9.6 billion in March 2020. This is in contrast to a marginal increase in foreign liabilities in FY19.
The figures are provisional and subject to revision by the RBI.
However, broadly speaking, they are likely to be an outcome of the steep correction in Indian markets in March.
The benchmark Nifty 50 crashed by around 25% in FY20 with a bulk of the crash in March.
On the asset side, foreign assets of mutual funds rose from $0.67 billion to $0.77 billion with Indian residents increasing their allocation to mutual funds investing partially or fully in overseas stocks.
The UAE, the UK and the US continued to remain the three largest sources of NRI investment in mutual funds.
The RBI survey also featured foreign assets and liabilities of asset management companies (AMCs), which manage mutual fund schemes. The foreign liabilities of AMCs rose from $3.3 billion to $4.4 billion, possibly representing the increased value of foreign stakes in Indian AMCs.
The year saw acquisitions of substantial stakes or full ownership by foreign players, such as Nippon, PGIM and Manulife, in erstwhile joint ventures such as Reliance Nippon AMC, DHFL Pramerica AMC respectively and domestic AMCs like Mahindra AMC.
The UK and Japan were the largest sources of investment in AMCs, the RBI survey revealed, with both countries accounting for about 89% of foreign direct investments (FDIs) in AMCs in 2019-20.
“The market correction in March is likely to have caused the drop in the value of NRI investments and, hence, the foreign liabilities of mutual funds. I have not seen major redemptions from my NRI clients," said Amol Joshi, founder, Plan Rupee Investment Services, a mutual fund distributor.