Debt Mutual Funds Witness Outflow Of Rs 25,872 Crore In August As Investors Remain Cautious

The funds logged an outflow of Rs 25,872 crore in August, against a net inflow of Rs 61,440 in July. Majority of the outflows were reported by categories having a duration profile of less than a year.

Debt-oriented mutual fund schemes witnessed a withdrawal of Rs 25,872 crore in August, as investors remained wary amidst the ongoing interest rate scenario in the US, the data from the Association of Mutual Funds in India (Amfi) revealed. The data noted that out of the total 16 debt categories, nine of them saw net outflows during the month. 

According to a PTI report, the majority of the net outflows were reported by categories having a duration profile of less than a year, such as liquid, ultra-short, and low duration. Further, the banking and PSU sectors also reported massive net outflows. The data stated that in comparison to a net inflow of Rs 61,440 in July, the funds reported an outflow of Rs 25,872 crore in August. 

Melvyn Santarita, analyst, manager research at Morningstar India, noted, “Given the current interest rate scenario and uncertainty over the direction of interest rates in the country, it appears that many investors continue to adopt a cautious stance and wait for further indication on interest rates to make investment decisions. Also, a rally in the equity markets could have also prompted investors to shift their focus from debt to equity.”

Santarita elaborated that the massive outflow has led to a decrease in the assets under management (AUM) of fixed income funds or debt funds to Rs 14 lakh crore as of August end, down from Rs 14.17 lakh crore in the previous month's end. With regards to categories, the liquid funds reported an outflow of Rs 26,824 crore, followed by ultra-short duration funds at Rs 4,123 crore, and banking and PSU funds at Rs 985 crore. 

The analyst noted that a different section of investors opted for risk and invested in categories like gilt funds, dynamic bond funds, and long-duration funds. He added that these investors expected a change in the interest rate cycle and therefore invested in these categories which will benefit if the interest rate cycle reverses.

“As and when there is more clarity on the start of the interest rate cut cycle, these categories may witness enhanced flows. These funds carry relatively high interest rate risks and hence investors should bear that in mind while taking exposure in them,” Santarita cautioned. 

Notably, overnight funds attracted Rs 3,158 crore, while floater funds reported an inflow of Rs 2,325 crore. Corporate bond funds logged in Rs 1,755 crore, and gilt funds witnessed an inflow of Rs 255 crore. The report noted that inflow in floater funds could be attributed to the ability of these funds to re-adjust on the basis of the interest rate scenario.