Liquid funds saw record outflows in February at Rs 43,825 crore as against inflows of Rs 59,682 crore in January, data from the Association of Mutual Funds in India (AMFI) showed.
Corporates normally park their money in liquid schemes to meet their short-term needs instead of leaving their funds idling in bank current accounts.
“Outflows into liquid funds are because of a quarter-end phenomenon as companies withdraw their investments to meet their quarterly advance tax requirements and for capital adequacy,” said NS Venkatesh, Chief Executive at AMFI.
Normally, companies rush to redeem their investments from cash plans every quarter to meet their advance tax payment commitments. Companies pay advance tax in four instalments of 15 percent, 30 percent, 30 percent, and 25 percent on June 15, September 15, December 15, and March 15, respectively.
Within the debt category, credit risk funds continued to witness outflows. However, outflows have halved at Rs 637 crore compared to the month-ago period.
Back-to-back downgrades of debt instruments from IL&FS, Dewan Housing Finance (DHFL) and Reliance Home Finance by rating agencies has hurt credit risk funds since the troubles first surfaced in June 2018.
Defaults by non-banking financial companies (NBFCs) have continued to impact credit risk funds.
Explaining the reason behind the investors' exit, a head of fixed income at a private fund house said, "Investors fear their funds could be lost if there is no recovery from such companies. As a result, investors are pulling out their money."
On the equity side, all categories registered inflows. Sector/thematic funds saw the highest inflows of nearly Rs 2,000 crore. Mid, small, multi, and large-cap categories saw inflows between Rs 1,400 crore and Rs 1,700 crore during the review period.
Fund managers attributed inflows in the midcap space to attractive valuations.
Last month, both BSE Large Cap and BSE Small-Cap Indices fell 6.5 percent each while, BSE Midcap Index dropped 5.5 percent.
Exchange-traded funds saw inflows worth Rs 16,344 crore in February on the back of inflows of Rs 1,873 crore in January. Balanced funds' category registered outflows for two consecutive months.
Overall, the industry witnessed outflows of Rs 1,985.52 crore in February, with assets under management (AUM) of falling marginally to Rs 27.23 lakh crore last month as against Rs 27.85 lakh crore in the month-ago period.