Survey of Foreign Liabilities and Assets of Mutual Funds – 2025-26

The Reserve Bank of India's release of the 2025-26 Survey of Foreign Liabilities and Assets of Mutual Funds marks a significant milestone in tracking India's evolving integration with global capital markets. This annual survey, covering 53 Indian mutual funds and their Asset Management Companies (AMCs), provides critical insights into cross-border financial flows that directly impact India's external sector stability and monetary policy formulation. The data reveals a nuanced picture: while mutual funds' foreign liabilities grew modestly by 3.3% year-on-year to US$31.5 billion (₹2.98 lakh crore) as of end-March 2026, their overseas assets surged 23.9% to US$10.2 billion, driven primarily by a 37.5% jump in foreign equity holdings. This asymmetric growth narrowed net foreign liabilities from US$22.3 billion to US$21.3 billion, signaling improving external asset coverage. The concentration of non-resident holdings in four jurisdictions — UAE, USA, UK, and Singapore accounting for nearly 50% of MF units at both face and market value — reflects established NRI investment corridors and the growing role of global financial hubs. Notably, Singapore's 22.8% growth in face-value holdings and Australia's 37.1% surge indicate diversification beyond traditional Gulf and Western markets. On the asset side, the dominance of USA, Luxembourg, and Ireland as destinations for overseas equity investments aligns with these jurisdictions' status as global fund domiciling centers, particularly for UCITS-compliant funds that Indian AMCs increasingly leverage for international distribution. For AMCs, the 18.1% rise in foreign liabilities to US$8.7 billion, fueled by inward direct and portfolio investments, underscores growing foreign investor confidence in India's asset management industry. The striking 80% FDI concentration from Japan and Canada highlights strategic bilateral financial partnerships — Japan through joint ventures like Nippon India and Sumitomo, and Canada via firms such as CPP Investments and Ontario Teachers' Pension Plan. This mirrors broader FDI trends where Japan has consistently ranked among India's top 5 FDI sources since 2014, supported by the India-Japan Comprehensive Economic Partnership Agreement (CEPA) and the 2018 Currency Swap Agreement. Constitutionally, this data feeds into India's Balance of Payments (BoP) compilation under the RBI's mandate per the RBI Act, 1934 (Section 40), and informs the External Debt Management framework governed by the Government Securities Act, 2006 and FEMA, 1999. The survey's methodology — combining MF-specific data with the annual FLA census for AMCs — exemplifies the coordinated statistical architecture involving RBI, SEBI (under SEBI Act, 1992), and the Ministry of Finance. The provisional (P) and revised (R) labels reflect adherence to IMF's Special Data Dissemination Standard (SDDS) norms, to which India has subscribed since 1996. Economically, the rising overseas equity allocation by MFs (now 97.2% of foreign assets) indicates Indian fund managers' growing sophistication in global asset allocation, supported by SEBI's 2021 enhancement of overseas investment limits to US$1 billion per MF and US$7 billion industry-wide. However, the negligible debt securities holding raises questions about diversification benefits and currency risk management. The declining net liability position improves India's Net International Investment Position (NIIP), a key vulnerability indicator monitored by IMF and rating agencies. Looking ahead, three trends warrant attention: first, the potential impact of US Federal Reserve rate cuts on non-resident redemptions and NAV volatility; second, SEBI's proposed framework for passive foreign investment via ETFs could accelerate overseas asset growth; third, the India-UAE CEPA (2022) and India-UK FTA negotiations may further deepen the top-four country dominance. For policymakers, the challenge lies in balancing capital account liberalization with macroprudential safeguards — a debate central to India's gradualist approach since the 1991 reforms and the Tarapore Committee reports on Capital Account Convertibility (1997, 2006).