Silver lining: Debt MFs log Rs 1.57 lakh crore inflow in October on investment in liquid schemes

Debt-oriented mutual funds experienced a strong rebound in October, with net inflows of Rs 1.57 lakh crore, reversing the significant redemptions seen in September. This recovery was largely driven by investments in liquid funds, contributing to a robust inflow despite ongoing challenges in some fund categories. 

Out of the 16 debt mutual fund categories, 14 reported positive net inflows during the month, while medium-duration and credit risk funds continued to see consistent outflows. 

As a result, the asset base of debt mutual funds grew by 11% to Rs 16.64 lakh crore by the end of October, up from Rs 14.97 lakh crore at the end of September, according to data from the Association of Mutual Funds in India (AMFI). 

The October inflow of Rs 1.57 lakh crore marked a sharp recovery from the Rs 1.14 lakh crore in outflows recorded the previous month.  

Liquid funds led the inflows with Rs 83,863 crore, representing 53% of the total inflow. Overnight funds and money market funds also attracted significant investments, with Rs 25,784 crore and Rs 25,303 crore, respectively. 

“Corporates typically invest surplus funds into liquid and money market funds after tax settlements in September, as these are low-risk, highly liquid options,” said Nehal Meshram, Senior Analyst, Manager Research at Morningstar Investment Research India. 

The ultra-short duration segment (funds with maturities of less than 12 months) also saw strong inflows, attracting Rs 7,054 crore, compared to more modest inflows in medium- and long-duration funds.  

Investors showed a preference for shorter maturity funds for temporary placements. Low-duration funds, corporate bond funds, and short-duration funds saw inflows of Rs 5,600 crore, Rs 4,644 crore, and Rs 1,362 crore, respectively. 

In a notable trend, after four consecutive months of outflows, banking and PSU funds recorded a substantial inflow of Rs 936 crore. 

The expectation of an interest rate cut has sparked interest in active duration strategies, with many investors positioning themselves to benefit from potential rate declines. Gilt funds saw inflows of Rs 1,375 crore in October, while long-duration bond funds attracted Rs 1,117 crore. Inflows into these funds are likely to increase further once the rate easing cycle begins. 

In addition to debt funds, equity-oriented mutual funds also saw record investments, with Rs 41,887 crore inflow in October, up from Rs 34,419 crore in September. 

Overall, the mutual fund industry witnessed an inflow of Rs 2.4 lakh crore in October, a sharp recovery from the Rs 71,114 crore outflow in September, largely driven by investments into debt schemes. 

(With inputs from PTI)