Debt mutual funds experienced a dramatic turnaround in August, moving from a record ₹1.87 lakh crore net inflow in July to a ₹8,127 crore net outflow in August, according to latest data from the Association of Mutual Funds in India (AMFI). The reversal was largely concentrated in overnight funds, which saw ₹30,654 crore of redemptions, representing a sharp swing from the ₹40,412.55 crore inflow recorded by overnight funds in July. As reported by Mint, experts attribute this sharp month-on-month swing to seasonal corporate and institutional cash movements rather than a fundamental shift in investor preference. The sharp change in debt flows pulled the mutual fund industry's total net inflow down to ₹41,353.60 crore in August, from ₹2,35,902.39 crore in July.
According to Protima Dhawan, director and unit head at Anand Rathi Wealth Limited, debt-fund flows are largely driven by institutional investors and corporate treasuries, unlike equity funds where retail participation has greater influence. As reported by Mint, corporates and institutions generally park surplus cash in overnight and liquid funds towards the end of a quarter, which is then deployed or rolled over at the beginning of the next quarter. However, as the quarter progresses, some of this short-term money is redeployed for business operations, advance tax payments, working-capital requirements and other corporate needs, leading to significant redemptions. Overnight funds invest in securities with a maturity of one day and are generally used for very short-term parking of money, making flows in this category particularly volatile as investors move money in and out depending on short-term cash and liquidity requirements.
Despite the overall outflow, several shorter-duration categories continued to receive money in August. Liquid funds attracted ₹19,934 crore, money market funds received ₹11,734 crore and ultra-short duration funds saw ₹4,258.56 crore of net inflows, as reported by Mint. However, short-duration funds recorded outflows of ₹4,258.56 crore, indicating some investor caution even in traditionally preferred categories. Inflows into liquid funds fell substantially to ₹19,934 crore from ₹1,19,065.85 crore in July, while money-market funds similarly saw inflows moderate to ₹11,734 crore from ₹21,180.23 crore. However, liquid funds continued to attract fresh money, with the quantum being substantially lower than the previous month's levels.
Corporate bond funds recorded ₹3,190.17 crore of outflows, gilt funds saw ₹1,824 crore in outflows and banking and PSU debt funds experienced ₹1,288 crore in outflows in August, according to Mint reports. Umesh Sharma from The Wealth Company Mutual Fund attributed the caution in duration-oriented categories to inflationary risks, elevated energy prices and evolving RBI policy expectations. The data shows that while overnight funds saw heavy redemptions, the composition of flows indicates investors remain selective about duration exposure, with the sharp reversal in debt-fund flows coming even as equity mutual funds continued to attract money.
While debt funds experienced outflows, equity mutual funds recorded net inflows of around ₹29,328 crore in August, up nearly 19% from July's ₹24,697.39 crore, according to latest AMFI data. Small-cap schemes attracted ₹7,973 crore, followed by mid-cap funds at ₹6,989 crore and flexi-cap funds at ₹5,059 crore, while large-cap funds recorded an outflow of ₹1,147 crore. Santosh Joseph, CEO of Germinate Investor Services, noted that the August data showed continued investor interest in mid- and small-cap funds, while SIP contributions remained consistently around the ₹30,000-crore level. He also pointed to the sustained outflows from ELSS funds, saying the reduced relevance of Section 80C deductions under the new tax regime has affected the category's appeal. Meanwhile, equity SIP contributions reached a record ₹32,297 crore in August, highlighting continued regular investment flows even as market conditions remained mixed.
