Investors pull out ₹1L crore from debt funds in September
What's the story
Debt funds, a popular fixed-income investment option, witnessed a major reversal in September. According to the Association of Mutual Funds in India (AMFI), net outflows from these funds stood at ₹1.02 lakh crore last month. This is a stark contrast to the relatively minor redemptions of ₹7,980 crore seen in August. The sharp decline is mainly attributed to quarter-end liquidity adjustments and advance tax-related outflows by institutional investors.
Redemption impact
Liquid fund category takes biggest hit
The liquid fund category took the biggest hit, with ₹66,042 crore withdrawn. Money market funds also witnessed a significant outflow of ₹17,900 crore. However, overnight funds saw a small inflow of ₹4,279 crore. This indicates that investors are parking their cash for the short term amid wider liquid fund redemptions.
Market reaction
Investors shifting focus to gold, ETFs
Naval Kagalwala, COO & Head of Products at Shriram Wealth, said most major debt categories such as corporate bond, PSU debt, floater, gilt and short-duration funds saw outflows. This is likely due to recent rate cuts and lower return expectations. He added that investors are recalibrating portfolios with gold and other ETFs witnessing the highest inflows across mutual fund categories.
Fund performance
Short-duration funds also face the heat
Short-duration and ultra-short duration funds also faced the heat of these market changes. Ultra-short duration funds saw outflows of ₹13,606 crore while low-duration and short-duration funds posted net redemptions of ₹1,253 crore and ₹2,173 crore, respectively. Medium- to long-duration categories remained largely muted with medium-duration funds down by ₹157 crore while medium-to-long duration funds posted a small inflow of ₹103 crore.
Market forecast
Retail participation in shorter-tenor products remains steady
Nehal Meshram, Senior Analyst at Morningstar Investment Research India, said September's debt fund flows indicate a temporary, liquidity-driven correction rather than a structural shift. She noted that institutional redemptions dominated while retail participation in shorter-tenor accrual-oriented products remained steady. As liquidity conditions normalize, allocations are likely to remain focused on high-quality short-duration strategies with selective interest in longer-duration products depending on future rate-cycle clarity.