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

Debt mutual funds, or fixed-income mutual funds, saw a significant outflow of ₹1.02 lakh crore in September, as against redemptions of ₹7,980 crore in August. The massive outflows were mainly driven by large institutional withdrawals from liquid and money market funds.

From 16 debt categories, 12 witnessed net outflows during September. Categories including liquid, money market and ultra short duration funds accounted for the major chunk of net outflows. 

Debt mutual funds are fixed-income MFs because they invest in fixed-income securities like government and corporate bonds. While fixed income MFs are a broader category for any mutual fund that invests in assets with fixed returns, debt MFs and fixed income MFs are often used interchangeably. 

AMFI September data

According to Association of Mutual Funds in India (AMFI) data released on October 10, debt mutual funds witnessed a net outflow of ₹1.02 lakh crore in September, significantly higher than the outflows of ₹7,980 crore in the preceding month. 

In July, debt MFs saw a significant inflow of ₹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 outflows have led to a 5% decrease in assets under management (AUM) of debt funds, to ₹17.8 lakh crore at the end of September from ₹18.71 lakh crore in the preceding month-end.

Category-wise, liquid funds witnessed the steepest outflow of ₹66,042 crore, while money market funds recorded redemptions of ₹17,900 crore. Ultra-short duration funds witnessed outflow of ₹13,606 crore, and low-duration funds saw net redemptions of ₹1,253 crore.

Comparatively, short-duration funds experienced modest outflows of ₹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," a PTI report quoted Meshram as saying.

On the other hand, overnight funds registered modest positive inflows of ₹4,279 crore, as some investors temporarily parked money in these instruments amid broader redemptions elsewhere.

Additionally, the dynamic bond category witnessed modest inflows of ₹519 crore, followed by medium to long duration funds (₹103 crore) and long duration funds (₹61 crore).

As opposed to debt MFs, equity MFs saw inflows of ₹30,421 crore in September. However, this was a 9% drop from ₹33,430 crore in August and well below July's all-time high of ₹42,703 crore. This came as investors turned cautious amid market volatility and global uncertainties.