Debt MFs see outflow of Rs 1 lakh crore in September on withdrawals from liquid, money market funds

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Fixed-income mutual funds witnessed a massive net outflow of Rs 1.02 lakh crore in September following modest redemptions of Rs 7,980 crore in the preceding month, primarily driven by large institutional withdrawals from liquid and money market funds.

Out of 16 debt categories, 12 of them witnessed net outflows during the month under review. The major quantum of net outflows was witnessed by categories such as liquid, money market and ultra short duration funds.

According to data with the Association of Mutual Funds in India (Amfi), debt mutual funds (MFs) witnessed an outflow of Rs 1.02 lakh crore in September, way higher than a net outflow of Rs 7,980 crore in the preceding month.

In July, debt MFs saw a significant inflow of Rs 1.07 lakh crore.

Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India, said the higher outflow in September was primarily led by "large institutional withdrawals from liquid and money market funds, reflecting quarter-end liquidity adjustments and advance tax-related outflows. These categories often used by corporates and institutions for short-term cash management remain highly sensitive to seasonal liquidity cycles." The huge outflow has pulled down the assets under management (AUM) of fixed income funds or debt funds by nearly 5 per cent to Rs 17.8 lakh crore at the end of September from Rs 18.71 lakh crore in the preceding month-end.

Of the debt categories, liquid fund category witnessed the steepest outflow of Rs 66,042 crore and similarly, money market funds saw significant redemptions of Rs 17,900 crore. Further, ultra-short duration funds witnessed outflow of Rs 13,606 crore, while low-duration funds also saw net redemptions of Rs 1,253 crore.

In comparison, short-duration funds experienced modest outflows of Rs 2,173 crore, indicating a more measured response within accrual-oriented categories. "These modest outflows suggest that investors remained broadly anchored to shorter-tenor accrual-oriented products, even as overall liquidity tightened toward quarter-end," Meshram added.

In contrast, overnight funds registered modest positive inflows of Rs 4,279 crore, as few investors temporarily parked money in these instruments amid broader redemptions elsewhere.

Also, the dynamic bond category saw modest inflows of Rs 519 crore, followed by medium to long duration fund (Rs 103 crore) and long duration fund (Rs 61 crore).

On the other hand, equity MFs saw inflows of Rs 30,421 crore in September, marking a 9 per cent drop from Rs 33,430 crore in August and well below July's all-time high of Rs 42,703 crore. This came as investors turned cautious amid market volatility and global uncertainties.