Debt mutual funds record big outflows of nearly Rs 3 lakh crore. Are safer options losing appeal?

In March last year, these funds had recorded an outflow of Rs 2.02 lakh crore. Across the 16 sub-categories, all segments witnessed outflows in March.

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Nehal Meshram, Senior Analyst, Morningstar Investment Research India said debt-funds saw a net outflow in March, marking a steep reversal from the relatively healthier flows seen in January and February. The pressure was concentrated in short-term and treasury-oriented categories, which suggests quarter-end institutional and corporate liquidity adjustments were a key driver.

Nehal further mentioned that the sharp reversal in debt fund flows in March was driven largely by heavy redemptions from short-term and liquidity-oriented categories.

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Liquid funds saw the highest outflow at Rs 1.34 lakh crore. Overnight funds recorded outflows of Rs 40,227 crore, followed by money market funds at Rs 29,206 crore.
Kartik Jain, MD & CEO, Shriram AMC, said debt categories, which saw inflows in February, witnessed significant outflows in March, particularly in liquid and money market funds, suggesting quarter-end treasury movements and profit booking by institutional investors.
The AMFI data showed that low-duration funds saw an outflow of Rs 25,227 crore. Corporate bond funds and gilt funds saw an outflow of Rs 15,292 crore and Rs 3,078 crore, respectively.
Commenting on the outflows from corporate bond funds and gilt funds, Nehal said corporate bond funds recorded outflows, indicating some pressure even in relatively high-quality accrual-oriented strategies, whereas gilt funds continued to see outflows, suggesting investor appetite for duration-led strategies remained limited.

Gilt funds have been witnessing continuous outflows for the last eight funds. Long-duration funds and dynamic bond funds have been witnessing outflows for six straight months each. Credit risk funds are observing outflows for the last 36 months.

The assets under management (AUM) of debt funds declined by 15% in March to Rs 16.51 lakh crore from Rs 19.43 lakh crore in February.

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From a broader quarterly perspective, the March pullback was large enough to drag overall debt fund flows into negative territory for Q1 2026, with short-term categories accounting for most of the weakness. Overall, the March data appears to reflect seasonal quarter-end liquidity adjustments more than any broad-based deterioration in sentiment toward fixed income, Nehal said.

Ankur Punj, MD & Business Head, Equirus Wealth said March typically witnesses a surge in outflows due to higher redemptions, particularly from debt mutual funds, as companies redeem money from liquid funds to meet year-end commitments.

However, this is just a temporary blip and industry is likely to witness a surge in inflows in the coming months backed by India’s strong macroeconomic fundamentals and valuations of domestic equities looking favourable, Punj further said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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