Once on top, Mauritius no longer key source of non-resident MF investments

Domiciled vehicles lose traction as route for investments into Indian mutual funds

The island nation of Mauritius was the top source of foreign investments into Indian mut­ual funds (MFs) in 2015, ahead of countries like the US and the UK. It dropped out of the list of major sources for the first time since at least 2011, shows an analysis of data from the Re­serve Bank of India (RBI) Survey of Foreign Liabilities and Assets of Mutual Funds 2024-25 rele­ased on August 18. Qatar, Oman, and Hong Kong are among the countries that account for a larger share of foreign investments into Indian MFs. 

International investors now often prefer to invest directly in India rather than through complex structures; and are increasingly focused on alpha through investment performance rather than tax-related gains, noted Praveen Jagwani, chief executive officer (CEO) at UTI International. Mauritius had been on the FATF (Financial Action Task Force) grey list. The Indian government had also been pushing against structures created solely to reduce taxes, noted Jagwani. 

“Global institutions seek greater transparency,” he said. 

The RBI survey has a list of 11 nations, which are the largest by market value of the units of MFs issued to non-residents (considered a foreign liability). Earlier, investment vehicles in Mauritius would pool capital from largely institutional investors and invest the same in Indian MF schemes. “Units held in Mauritius recorded a 48 per cent decline, coinciding with the signing of the Protocol to amend the India-Mauritius Do­uble Taxation Avoidance Agr­eement during 2016-17,” noted a similar RBI survey in 2017. 

The numbers have headed downwards since then. Mauritius accounted for ₹5,649.2 crore or 6.6 per cent of total investments in March 2018 and was ranked fifth. This fell to ₹2,619 crore or 1.2 per cent of the total as of March 2024 (rank 11) despite the pandemic boom in markets. In comparison, Mauritius accounted for ₹7,084.5 crore and 12.5 per cent of total investments in March 2015. 

Mauritius now only finds a mention in terms of foreign direct investment (FDI) in asset management companies or ARCs (₹2,533 crore) and overseas direct investment by them (₹70 crore). Such FDI typically refers to investments made for long-term business purposes in or by the companies managing the MFs, as opposed to investments in the schemes themselves which are typically made for portfolio gains. 

Institutions like pension funds and endowments historically have been the primary investors via Mauritius. However, direct investments from home countries or through reputable jurisdictions like Singapore are becoming more popular, noted Jagwani.  Europeans have regulatory difficulties in buying into Mauritius-based funds, and are investing primarily in funds compliant with the UCITS (Undertakings for Collective Investment in Transferable Securities) framework, he said. 

The UAE was another major source for investments into India but the UAE regulator — SCA (Securities and Commodities Authority) — has instituted new rules requiring MFs to be domiciled within the UAE. The US tends to use Mauritius more for private market transactions rather than public securities, he added.