After witnessing staggering inflow in July, debt-oriented mutual fund schemes saw a withdrawal of Rs 25,872 crore last month as investors continue to adopt a cautious stance amid the current interest rate scenario in the US. Out of 16 debt categories, nine of them witnessed net outflows during the month under review, data with the Association of Mutual Funds in India (Amfi) showed.
The major quantum of net outflows was witnessed by the categories having less than one year duration profile such as liquid, ultra short and low duration. Additionally, the banking and PSU category also witnessed significant net outflows.
According to the data, debt mutual funds witnessed an outflow of Rs 25,872 crore in August as compared to a net inflow of Rs 61,440 crore in the preceding month.
“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,” Melvyn Santarita, Analyst – Manager Research at Morningstar India, said.
The huge outflow has pulled down the assets under management (AUM) of fixed income funds or debt funds to Rs 14 lakh crore at the end of August from Rs 14.17 lakh crore in the preceding month-end.
In terms of categories, liquid funds saw an outflow of Rs 26,824 crore, followed by ultra short duration funds (Rs 4,123 crore) and banking and PSU funds (Rs 985 crore.)
On the other hand, there was another section of investors who chose to take some risk. Anticipating a change in the interest rate cycle, a section of investors invested in categories like Gilt Funds, Dynamic Bond Funds, and Long Duration Funds, which stands to benefit if the interest rate cycle reverses, he said.
“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,” he added.
Overnight fund attracted Rs 3,158 crore, floater fund saw an inflow to the tune of Rs 2,325 crore, corporate bond fund logged in Rs 1,755 crore and gilt fund (Rs 255 crore).
Inflow in floater funds could be attributed to their ability to re-adjust based on the prevailing interest rate scenario.
