Mutual funds focused on investing in fixed-income securities witnessed a heavy outflow of Rs 92,248 crore in June in an uncertain macro environment, driven by expectations around an increasing rate cycle, higher commodity prices and a slowdown in growth.
This comes following a net outflow of Rs 32,722 crore in May and an inflow of Rs 54,756 crore in April, data available with the Association of Mutual Funds in India (Amfi) showed.
Out of the 16 fixed-income or debt fund categories, 14 witnessed net outflows during the month under review. The heavy withdrawal was seen from segments, such as overnight, liquid and ultrashort-term duration funds.
The only categories that witnessed inflows were the 10-year gilt funds and the long-duration funds. One of the reasons for the net outflow could be a sign of investors' short-term money requirements due to the current market scenario of rising repo rates and inflation rates, Priti Rathi Gupta, Founder, LXME – India's first financial platform for women, said.
"An uncertain macro environment, driven by expectations around an increasing rate cycle, higher commodity prices and a slowdown in growth has likely led to investors steering clear of debt funds," Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India, said.
"Single-digit returns, rising bond yields and the rising inflation have also likely led to investors choosing to redeem their investments in debt funds in favour of other investment avenues," she said.
In addition, corporates and businesses choosing to take out their short-term money parked in overnight and/or liquid funds for their business activities have also likely led to the outflows across these categories, she added.
The outflow has pulled down the asset base of debt mutual funds to Rs 12.35 lakh crore by June end from Rs 13.22 lakh crore at the end of May.
The liquid, ultrashort-term, money market and overnight fund categories constitute a substantial portion of the total assets (about 50 per cent) within the debt fund category.
Given their significant contribution, even a slight change in the quantum of flows in percentage terms can make a huge difference in the overall flows within the category. The liquid and the overnight categories also stand out because of the magnitude of institutional money that flows into them.
Outflows for the month of June were largely driven by the overnight funds, liquid funds and ultrashort-term duration fund categories with the outflow figures for these categories standing at Rs 20,668 crore, Rs 15,783 crore and Rs 10,058 crore, respectively.
Generally, debt funds are considered to be less risky, with investors taking comfort in being able to hedge their risks by parking hard-earned money in instruments that provide better returns than bank fixed deposits.
On the other hand, equity mutual funds attracted a net sum of Rs 15,498 crore in June amid heightened volatility in the stock market environment and consistent selling by Foreign Portfolio Investors (FPIs).
Investors are preferring equity as it is known to be a value creator asset class and its increasing awareness amongst the investors is driving the growth in investments in equity-oriented schemes with an aim to achieve long-term financial goals.
Overall, the mutual fund industry registered a net outflow of Rs 69,853 crore last month as compared to a net pullout of Rs 7,532 crore in May.