Debt fund inflows fell sharply in November to ₹12,916 crore, down 92% from ₹1.57 lakh crore in October. The steep decline was driven by a mix of liquidity pressures, tax payment obligations, and market dynamics.

Tighter liquidity and tax payments

Liquid funds faced the brunt of the outflows, recording net redemptions of ₹1,778.98 crore.

The impact was primarily due to tighter liquidity conditions and tax payments, which led to a significant shift in investor behavior.

Redemptions from long-duration debt

Long-dated debt funds, including medium-duration, long-duration, and gilt funds, saw higher redemptions.

“This could be a reaction to pressure on Indian long bond yields and some profit booking,” said Mayukh Datta, Chief Business Officer, ITI Mutual Fund.

Shift to low-risk debt instruments

Despite the overall decline, investors showed a strong preference for low-risk categories like low-duration funds, ultra-short-duration funds, money market funds, corporate bond funds, and overnight funds.

These accounted for 85% of the inflows across nine debt fund categories with positive momentum.

Duration strategies show resilience

Gilt funds recorded net inflows of ₹1,802.73 crore, supported by rising expectations of interest rate cuts.

Nehal Meshram, Senior Analyst, Morningstar India, pointed out that “signs of an economic slowdown reflected in GDP figures” have enhanced the appeal of long-duration funds, which typically perform well in a falling interest rate environment.

Total industry AUM rises slightly

Despite the fall in debt fund inflows, the mutual fund industry’s total Assets Under Management (AUM) increased to ₹68.08 lakh crore in November, up from ₹67.25 lakh crore in October.

The decline in debt fund inflows highlights a cautious shift among investors. With market pressures and liquidity challenges in play, low-risk investments and selective duration strategies have become the preferred choice.