Debt mutual funds see Rs 1.95 lakh crore outflow in March

Mutual funds focussed on investing in fixed-income securities saw a massive outflow of Rs 1.95 lakh crore in March, after pulling out Rs 28,000 crore in the preceding month, mainly on account of withdrawal from liquid funds. Most individual categories that invest in fixed-income securities or debt funds saw outflows. However, overnight category managed to see positive inflow.

According to Association of Mutual Funds in India (Amfi), mutual funds that invest in fixed-income securities saw an outflow to the tune of Rs 1.95 lakh crore last month as compared to a withdrawal of nearly Rs 28,000 crore in February.

In January, the segment had witnessed a fund infusion of Rs 1.09 lakh crore.


The decline from debt side is a quarter-end phenomena with banks maintaining capital adequacy norms and corporates fulfilling advance tax obligation, and these funds would return in April, Amfi Chief Executive N S Venkatesh said.

A total of Rs 1.10 lakh crore was taken out from liquid funds, which invest in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon.

Apart from liquid funds, a net withdrawal of over Rs 29,000 crore was seen from ultra-short duration funds and nearly Rs 20,000 crore from low duration funds.

In addition, banking and PSU funds saw an outflow to the tune of over Rs 6,300 crore, while the same for credit risk fund was over Rs 5,500 crore and corporate bond category close to Rs 3,800 crore.

However, inflow in overnight schemes, which invest in securities with a maturity of one day, stood at Rs 26,654 crore.

Debt funds are considered to be less risky, with investors taking comfort in being able to hedge their risks by parking hard-earned money in instruments that provide better returns than bank fixed deposits.

However, a spate of multiple rating downgrades and the aftereffects impacted the flows in the debt market.

"Credit risk funds have been under tremendous pressure over the last year because of a spate of downgrades. Instances where corporate bond papers with the highest rating have been directly downgraded to a default have thrown a spanner in the works," Morningstar said.

On the other hand, investors pumped Rs 11,485 crore in equity mutual funds, making it the highest level in one year.

This comes amid the broader market witnessing heavy volatility on concerns over the impact of coronavirus.

Overall, the mutual fund industry witnessed a net outflow of Rs 2.13 lakh crore across all segments. This comes following an outflow of Rs 1,985 crore in February.