Debt Mutual Fund Inflows Drop 44% In February; Equity Mutual Fund Flows Rise

The debt mutual fund inflows in India dropped sharply in February compared with the previous month. According to the latest data, debt-oriented mutual fund schemes received net inflows of ₹42,106 crore in February. In January, the category had attracted ₹74,827 crore. This means inflows dropped by about 44% on a month-on-month basis.

Market participants say the slowdown usually reflects a tapering of year-end treasury redeployments. Companies and institutions often park surplus cash in debt funds around this period. Some investors also appeared cautious as they assessed interest-rate trends and overall market conditions.

Investors Prefer Short-Term Debt Funds

Most of the money during February went into shorter-duration debt schemes. Liquid funds received the highest inflows during the month at about ₹59,077 crore. These schemes are often used by companies and institutional investors to park surplus money for short periods.

Money market funds received inflows of ₹6,267 crore. Low-duration funds also saw fresh investments of nearly ₹2,329 crore.

At the same time, a few categories recorded net withdrawals. Overnight funds saw outflows of ₹14,006 crore. Ultra-short duration funds reported outflows of ₹4,374 crore.

In some cases, investors appear to have moved slightly towards funds with longer maturities to try and capture somewhat higher yields.

Longer-Term Debt Categories See Weak Flows

Funds that invest in longer-term bonds continue to struggle to attract money.

Corporate bond funds recorded outflows of ₹2,302 crore in February. Short-duration funds saw withdrawals of ₹1,917 crore, while banking and PSU debt funds reported outflows of ₹1,473 crore.

Other segments, such as dynamic bond funds, medium-to-long duration funds, and long-duration funds, also saw limited investor interest during the month.

Nehal Meshram, Senior Analyst and Manager of Research at a private investment research firm in India, said the pattern of flows suggests investors are currently focusing on liquidity and capital stability.

Feroze Azeez, Joint CEO of a wealth management firm, said debt funds have now recorded positive inflows for the second month in a row, although February numbers were lower than those seen in January.

He added that investors continue to keep some allocation to debt while spreading investments across different asset classes.

Equity Mutual Funds See Moderate Rise

In contrast, equity mutual fund inflows increased slightly in February.

The category received net inflows of ₹25,965 crore, compared with ₹24,013 crore in January. This represents an increase of about 8% month-on-month. The total assets under management (AUM) stood at ₹82.02 lakh crore, compared with ₹81.01 lakh crore in January.

Within equity funds, large-cap funds attracted about ₹2,111.7 crore in February, slightly higher than ₹2,005 crore recorded in January. Mid-cap funds saw inflows of ₹4,003 crore, up from ₹3,185 crore a month earlier. Small-cap funds received ₹3,881 crore, compared with ₹2,942 crore in January.

The numbers suggest that investors are still adding money to equity markets, although inflows remain selective across segments.

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Investor Takeaway

Debt funds still saw net inflows in February, but the amount was much lower than in January. This could mean that the earlier spike was largely due to short-term institutional money parked at the start of the year.

Equity funds continued to attract fresh investments, particularly in mid- and small-cap categories. For now, investors appear to be adding to equities while keeping some exposure to debt.

Sources:

CNBC TV18

The Economic Times