Debt fund inflows down 62% in Aug, investors prefer short-term, safer bets

The mutual fund industry saw a 43 per cent dip in net inflows for the month of August, to Rs 1.08 lakh crore against Rs 1.89 lakh crore in July, 2024. This decline was driven primarily by a significant drop in inflows to the tune of 62 per cebt into debt mutual funds, reveals the AMFI (Association of Mutual Funds in India) data released on Tuesday.

Debt funds saw inflows of Rs 45,169.36 crore in August 2024, compared to the significant inflows of Rs 1,19,587.60 crore recorded in July.

Overnight funds saw the highest net inflows for the month at Rs 15,105.93 crore, followed by liquid funds at Rs 13,594 crore and money market funds, with all three categories accounting for about 86% of the overall inflow. Conversely, banking and PSU funds faced the highest outflow of Rs 1,549 crore, contrasting with an outflow of Rs 307 crore in July.

 

Of the total 16 categories of debt mutual funds, 12 received inflows in August.

"This trend reflects a preference for low-risk and highly liquid investment options. Investors also showed a preference for categories with shorter maturity profiles, such as short term, corporate bond and ultra short duration funds, for temporary parking of funds," said Nehal Meshram – Senior Analyst – Research – Morningstar Investment Research India.

The sharp decline in inflows highlights growing caution among investors. They are prioritising shorter-term, safer options while awaiting clearer signals on interest rate movements.

Investor interest in active duration strategies has driven notable inflows, particularly into categories such as Gilt Funds, Gilt Funds with a 10-year constant duration, Dynamic Bond Funds, Medium to Long Duration, and Long Duration Funds. "These funds stand to benefit if interest rates decline, and inflows could increase as the outlook on rate cuts becomes clearer. Gilt funds have already seen significant inflows over the past two months, with Rs 1,902.09 crore in the current month, up from Rs 1,261.63 crore last month," said Meshram. 

Last month, 12 out of 16 debt mutual fund categories recorded net inflows. However, categories like Banking and PSU, Floaters, Low Duration, and Credit Risk funds experienced outflows. Notably, Medium Duration funds, which had consistently seen outflows, reported marginal inflows in August for the first time in 15 months. However, this shift does not provide any meaningful indication of increased investor interest in high-yielding funds.

Among the debt fund categories that saw net inflows in August 2024 were Overnight Funds at Rs 15,106 Crore, Liquid Funds at Rs 13,595 Crore, Money Market Funds at Rs 10,093 Crore, Short Duration Funds at Rs 4,360 Crore, Gilt Funds at Rs 1,902 Crore, Long Duration Funds at Rs 982 Crore, and ultra short duration funds at Rs 696 Crore. 

"In August 2024, active debt fund AUM increased to Rs 16.00 Trillion compared to Rs 15.44 Trillion at the close of July 2024. This is the highest active debt fund AUM we have seen in the last one year and can be attributed to positive flows in 4 out of last 5 months. Debt fund AUM is up 3.63% over July 2024 and on a yoy basis up 14.29%," said brokerage IIFL in a note.