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Debt-oriented mutual funds recovered in October, driven by investments in liquid schemes.
Debt funds saw a strong net inflow of Rs 1.57 lakh crore in October, marking a sharp recovery from the outflows of Rs 1.14 lakh crore in September 2024.
Debt mutual fund asset base grew by 11% to Rs 16.64 lakh crore in October, up from Rs 14.97 lakh crore at the end of September, according to data with Association of Mutual Funds on India (Amfi).
Categories Reporting Inflows
14 out of 16 debt mutual fund categories reported net inflows in October, which shows strong investor interest across most debt funds.
However, medium-duration and credit risk funds continued to see outflows, maintaining a trend of consistent redemptions.
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Liquid Funds Leading the Inflows
- Liquid funds led the pack with Rs 83,863 crore in inflows, making up 53% of the total debt fund inflows in October.
- Other funds that attracted strong inflows included:
- Overnight funds: Rs 25,784 crore
- Money market funds: Rs 25,303 crore
"Corporates typically channel surplus funds into liquid and money market funds post-tax settlements in September, reflecting a preference for these low-risk, highly liquid options," Nehal Meshram, Senior Analyst, Manager Research, Morningstar Investment Research India, said.
These types of funds offer safety and liquidity, making them an attractive choice for short-term placements, particularly for corporates looking to manage cash flows after tax payments.
Further, the ultra-short duration segment -- less than 12 months -- is experiencing good inflows compared to the medium- to longer-term segments. The segment has seen inflow of Rs 7,054 crore.
Short-Term Funds Gaining Popularity
The ultra-short duration segment (funds with a maturity of less than 12 months) saw inflows of Rs 7,054 crore in October, reflecting investor preference for low-duration funds amid uncertain economic conditions.
Other funds with shorter maturities, such as:
- Low-duration funds: Rs 5,600 crore
- Corporate bond funds: Rs 4,644 crore
- Short-duration funds: Rs 1,362 crore
These funds are seen as safer options in a rising interest rate environment or when investors are uncertain about long-term market movements.
Additionally, after four consecutive months, banking and PSU funds have seen huge inflows to the tune of Rs 936 crore.
In recent months, anticipation of a rate cut has fuelled interest in active duration strategies, with these funds positioned to benefit from potential interest rate declines.
In October, gilt funds experienced inflow of Rs 1,375 crore, while long-duration bonds saw Rs 1,117 crore. Inflows into these funds are expected to rise further once the rate easing cycle begins.
Apart from debt funds, investors pumped in a record Rs 41,887 crore in equity-oriented mutual funds during the month under review against an investment of Rs 34,419 crore.
Overall, the mutual fund industry witnessed an inflow of Rs 2.4 lakh crore in the month under review, after an outflow of Rs 71,114 crore in September. The huge inflow was due to investments into debt schemes.
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