Bank certificates of deposit have emerged as the largest holding in debt mutual fund portfolios, overtaking government securities according to data from Sebi's annual reports. The share of CDs rose significantly to 25 per cent in March 2026 from 15.9 per cent in March 2024, while government securities (G-secs) fell to 14 per cent from 21.7 per cent during the same period. Corporate debt also saw its share increase to 17 per cent from 15.2 per cent. The shift reflects a clear preference among investors for shorter-duration investment options in the current market environment.
The shift comes after changes in debt fund taxation, which have reduced investor interest in longer-horizon schemes that typically invest in government securities. As reported by Business Standard, short-horizon schemes have remained relatively unaffected by these taxation changes. The trend reflects a clear preference among investors for shorter-duration investment options in the current market environment.
Long-tenure government bonds are witnessing a surge in demand due to the near absence of corporate debt of similar maturities. Insurance companies and the Employees' Provident Fund Organisation (EPFO) are gradually moving allocations toward long-term government bonds, with expectations that the Reserve Bank of India may hold rates for longer supporting this trend. The 15-year paper, which was trading at 7.20% in February due to expectations of a hike, is now trading at 6.98%. General insurance companies must maintain a minimum 65% of investment assets in G-secs, state government bonds and AAA rated bonds, making them natural buyers of long-tenure government securities when corporate alternatives are scarce.
The trend is reflected in investment flows, with money market funds attracting ₹59,478 crore in 2025-26, the highest among debt categories, while gilt funds saw outflows of ₹7,799 crore. Overall, debt scheme assets rose 6.7 per cent to ₹24.34 trillion during 2025-26, indicating continued growth in the debt mutual fund segment despite the shift in portfolio composition. The data shows the sustained investor preference for liquid, short-term instruments over longer-duration government securities.
