Debt funds soften in September as liquidity buckets swing to outflows

Debt funds soften in September as liquidity buckets swing to outflows

Debt-oriented schemes saw a broad cool-off in September 2025, reversing the heavy allocations visible in July and the mixed but still constructive prints in August. The shift was led by the key liquidity buckets, where deployment reversed to redemptions, while most duration cohorts stayed tepid.

Within the very short end, liquid funds moved to Rs -66,042 crore in September (August: Rs -13,350 crore), signalling a deeper unwind of the prior month’s inflows. Money market funds also slipped to Rs -17,900 crore (August: Rs +2,211 crore), and ultra-short duration printed Rs -13,606 crore (August: Rs +374 crore). Overnight funds moderated but stayed positive at Rs +4,279 crore (August: Rs +4,951 crore), cushioning a part of the outflows in other liquidity cohorts.

In the short-to-medium duration complex, flows were soft to negative. Low duration recorded Rs -1,253 crore (August: Rs +477 crore), and short duration registered Rs -2,173 crore (August: Rs +565 crore).

Farther out the curve, selective appetite persisted but remained subdued: corporate bond funds showed Rs -1,444 crore (August: Rs -825 crore), gilt funds posted Rs -615 crore (August: Rs -928 crore), and 10-year constant-duration gilt was broadly flat at Rs -1.5 crore (August: Rs +168 crore). Notably, dynamic bond funds were one of the few pockets to stay green at Rs +519 crore (August: Rs -395 crore).

Taken together, September’s tape points to net selling across liquidity sleeves after August’s lighter unwind and July’s strong build-up. The pattern is consistent across liquid, money market and ultra-short, with overnight the only liquidity cohort still adding. Duration saw a mild step-down, and rate-sensitive gilt categories continued to witness redemptions, albeit smaller than in August. Against this backdrop, dynamic bond provided the month’s contrast with modest positive prints. The overall read is one of consolidation: allocations pulled back from cash-like strategies, while duration remained a selective, incremental trade rather than a broad risk-on.