Foreign Liabilities & Assets of Mutual Fund AMCs in India

Did you know, Due to the growth in units issued to Non-Resident Indians, Mutual Fund (MF) Companies’ foreign liabilities grew by $3.4 billion in 2021–2022. (NRIs). It was $17.7 billion (at market value) as of March 2022, according to statistics released by the Reserve Bank of India (RBI) on August 8. Analysts and industry specialists in mutual funds claim that recent worldwide return rates have been notably low. As a result, NRIs searched for chances to engage in Indian stocks and allocate capital to them. Additionally, due to an increase in their equity securities holdings, Mutual Funds companies’ foreign assets increased by $3.6 billion during the course of the year, reaching $6.5 billion in March 2022. As a consequence, in March 2022, Mutual Funds companies’ net foreign liabilities were $11.3 billion.  Mutual funds owned by NRIs have outstanding constraints on investments in foreign liabilities. In this article, we’ll discuss Rise in Foreign Liabilities of Mutual Fund by AMCs.

But let us first, grasp little knowledge about Asset Management Company (AMC) before we dig into topic of this write-up.

What is a Assets Management Company?

An AMC is a company that manages investors’ funds. This involves rising and allocating funds in various assets and securities like stocks, bonds etc. AMC appoints experts to manage the funds and these experts are called fund managers.

Fund managers are highly qualified professionals who take care of the investment decisions of investors. These fund managers have extensive experience in stock markets and investments and their main objective is to make profitable investments for investors. Top mutual fund managers in India create portfolios of various risk appetites, tax benefits, time periods etc. for investors who do not have much knowledge about investments and stock markets.

How does an AMC work?

The management company is part of a mutual fund that is responsible for various activities and operations. Investing in an AMC means investing in a fund managed by an AMC. SEBI’s approval is required to form an AMC. When choosing funds for investment, investors prefer funds managed by well-known AMCs, so it is important to evaluate the market reputation of the AMC.

Here are the necessary steps that an Asset Management Company in India takes:

• Asset Allocation: AMC invests in various equity and debt instruments. The AMC invests in such a way as to maintain investors’ confidence in the company. The timing of buying and selling investments depends on the fund manager who manages the investor’s funds.
• Research: The fund manager, along with his team, conducts a detailed market analysis to arrive at a conclusion and create a balanced portfolio. This is the most important decision an AMC takes, as it requires a lot of time and market research.
• Performance Review: AMCs are accountable to investors for their investment decisions. Therefore, a regular evaluation of the fund’s performance with regard to NAV, asset allocation, etc. is carried out.

RBI launches annual survey on foreign liabilities, assets of mutual funds and AMCs

Annually, the Reserve Bank conducts a survey on the foreign liabilities and assets (FLA) of Indian mutual fund companies and their asset management companies (AMCs). It gathers data on MF firms’ and AMCs’ external financial liabilities and assets as of the end of the most recent fiscal year in March (FY). The data gathered from this survey is used to create India’s Balance of Payments (BoP), International Investment Position (IIP), and other related external sector statistics, which give a thorough account of the nation’s international financial transactions and exposures in a statistical framework that is comparable across the globe.

• The Reserve Bank of India (RBI) has launched the 2021-22 round of its annual survey on “Foreign Liabilities and Assets of Mutual Funds and Asset Management Companies”, the central bank said in a statement.
• The survey collects information from mutual fund companies and asset management companies about their external financial liabilities and assets at the end of March of the last financial year.
• The results of the survey are published, except for use in compiling balance of payments data and for other purposes.
• Asset Management Companies (AMCs) are required to submit their Annual Return of Foreign Liabilities and Assets (FLAs) online by 15 July 2022 through a web portal.
• In addition, the mutual fund companies are required to fill the survey plan, which is available on the RBI website in both Hindi and English formats and is sent by email by July 15, 2022, the statement said.

Obligation on Asset Management Company to fill-up Survey Schedule

On their external financial liabilities and assets as of the end of March of the most recent fiscal year, mutual fund companies and asset management companies participate in the survey. In addition to being utilised for the production of balance of payments data and other purposes, the survey findings are made available to the public. By July 15, 2022, asset management companies (AMCs) must electronically submit the annual return on foreign liabilities and assets (FLA) using the web-based portal. The survey schedule, which is accessible on the RBI website in both Hindi and English forms and issued via email by July 15, 2022, must also be filled out by mutual fund companies (MFs), according to the announcement.

The following guidelines should be followed by the responding company while filling out and submitting the survey schedule:

• The company must utilise the most recent survey schedule in.xls format without including any macros.
• The company must save the survey schedule as an Excel 97-2003 workbook, or in.xls format, by taking the actions listed below:
• Go to Office Button/File Conserve As Type in a save
• When saving the survey schedule, choose “Excel 97-2003 Workbook” and use the.xls extension.
• It is required that the company provide the survey schedule without including any macros.
• The system will reject any survey schedule that is supplied in a format other than.xls.
• Make sure that all of the information provided in the survey schedule is accurate and thorough.
• The declaration sheet, which the company must complete after completing sections I and II, serves to verify that the data submitted by the company are confirmed again before submission to RBI. This reduces the likelihood of data input mistakes, data loss, and other issues.

Who is required to file Foreign Liabilities and Asset Return?

Entities that are required to submit an application for recognition of foreign liabilities and assets are:

• Company: A company engaged in making or receiving foreign direct investment must file an FLA return. In addition, the company shall also report its outstanding ODI or FDI for the previous year.
• Limited Liability Partnership Firm: A limited liability company dealing in ODI and FDI shall file an FLA return.
• Others (including registered Alternative Investment Funds (AIFs), partnership firms, and public and private sector companies): Apart from companies and LLPs, registered AIFs, partnership firms, and PPPs are required to submit FLA returns if they deal with ODI and FDI. Further, they are entitled to receive a devalued fictitious CIN in case there is any remaining foreign direct investment as of the end of March.

Important points to be kept in mind for filing FLA Return

The following are the points to be kept in mind for filing FLA Return:

• In the event that the company does not submit a return to the FLA within the specified period, it will be liable to pay a fine of three times the amount associated with the violation. In case it is not quantifiable, the company will have to pay a penalty of Rs. 2, 00,000/-. If the violation continues, the company will have to pay a fine of Rs 5,000 per day.
• The deadline for submitting the FLA return is July 15 of the given year. If the FLA return filed is based on unaudited accounts, a revised form based on audited accounts must be filed by the end of September of the same year.
• RBI Regional Offices have the power to compound offences indefinitely. However, this is not the case for the Kochi and Panaji regional offices.

Conclusion

The Foreign Liabilities and Asset Return shall be filed with the RBI to avoid any penalty. The company shall disclose all the outward and inward remittances while filing an FLA Return. Moreover, the company shall ensure that all its accounts remain updated and audited to file FLA Returns without any hindrances. To avoid any penalty for late filing, the company shall ensure that the FLA Return is filed by the 15th of July every year. Further, the filing of returns is a mandatory provision, and compliance with it will ensure transparency in the remittance of funds by the company.