RBI Study: Foreign Liabilities of Indian Mutual Funds Rise 19.9% in FY25

Context:

The Reserve Bank of India (RBI) released a study highlighting the growing foreign investor participation in Indian mutual fund schemes.

Key Highlights:

• Foreign Liabilities: Increased 19.9% YoY, reaching ₹2.6 lakh crore in FY25, up from ₹2.1 lakh crore in FY24.
• Top Investors:
  • UAE: Largest contributor, accounting for 1/5th of total MF investments.
  • U.S. & U.K.: Together contributed ~20% .
  • Australia & Canada: Fastest growth, with investments rising over 40% in FY25.

Implications:

• Positive Side:
  • Enhances capital inflows into domestic mutual funds.
  • Strengthens India’s integration with global financial markets.
• Concerns:
  • Increases exposure to global market volatility and sudden foreign outflows.
  • May affect financial stability during external shocks.
  • Raises regulatory challenges in monitoring cross-border flows.

Regulatory:

• Investments by Foreign Portfolio Investors (FPIs) and non-residents are regulated by SEBI and RBI.
• Governed under Foreign Exchange Management Act (FEMA), 1999.

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