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Local MFs’ global exposure rises 259%; most in US, Luxembourg

Foreign assets of mutual funds increased due to rise in equity security and other foreign assets during the year and stood at Rs 20,865 crore ($2.9 billion) at end-March 2021, a big rise from Rs 5,808 crore a year ago, said a Reserve Bank of India (RBI) report.

Written by George Mathew | Mumbai |
September 16, 2021 3:41:54 am
The global exposure of Indian mutual funds is normally through fund of funds (FoFs).

Investments by Indian asset management companies (AMCs) in overseas markets shot up by 259 per cent as of March 2021, indicating the rising interest of Indian investors in overseas stocks and funds. Foreign assets of mutual funds increased due to rise in equity security and other foreign assets during the year and stood at Rs 20,865 crore ($2.9 billion) at end-March 2021, a big rise from Rs 5,808 crore a year ago, said a Reserve Bank of India (RBI) report.

Overseas equity investments of MF companies were largely concentrated in the USA and Luxembourg. Investments in the US shot up 272 per cent to Rs 9,029 crore in March 2021 from Rs 2,427 crore in March 2020. Luxembourg accounted for Rs 8,867 crore of Indian MF investment as against Rs 2,536 crore a year ago, a rise of 249 per cent, the RBI said.

The global exposure of Indian mutual funds is normally through fund of funds (FoFs). This means an Indian AMC floats a fund in India with the Sebi permission and mobilises money from local investors to invest in an international mutual fund. “This is less risky as the Indian AMC doesn’t need to monitor the performance of its overseas investment on a daily basis. Many Indian MFs have floated such FoFs for investing in overseas funds which in turn invest in stocks listed on the New York exchange and Nasdaq,” said a fund manager.

These Fund of Funds give Indian investors an opportunity to invest in global innovators such as Amazon, Facebook, VISA, AstraZeneca and Netflix. IDFC AMC recently launched IDFC US Equity Fund of Fund which will invest in US stocks through JP Morgan US Growth Fund. The rise in global exposure is aided by the recovery in overseas markets due to the excess liquidity pumped by central banks to tackle the slowdown triggered by the Covid pandemic. The US economy started showing signs of economic revival, supported by the aggressive vaccination rollout, flattening curve of the Covid-19 cases, progression towards herd immunity, reopening of establishments, and fiscal stimulus by the government. These key factors have restored the confidence of investors, according to a fund manager.

On the other hand, foreign liabilities, or market value of investment made by foreign residents, in Indian AMCs shot up to Rs 106,069 crore ($14.5 billion) as of March 2021 from Rs 72,366 crore a year ago, showing a rise of 46.6 per cent.

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