Debt Mutual Funds See Outflows Worth ₹6,525 Crore Driven By A Surge In Short-Term Fund Redemptions

In February 2025, debt mutual funds recorded ₹6,525 crore of outflows due to the rising redemption of short-duration funds. This is a sharp reversal from the trend observed in January 2025, where these funds attracted ₹1.28 trillion in investments. As per the Association of Mutual Funds in India, nearly 10 of 16 MF categories witnessed net outflow during February.

Heavy Redemptions in Short-Term Debt

Based on news reports, short-term debt categories recorded heavy redemptions. This included ultra-short duration funds (44,281 crore), overnight funds (₹2,264 crore), money market funds (₹ 276 crore), and low-duration funds witnessing the highest outflows. The four categories together were responsible for 90% of the total redemptions.

Midcap Volatility Reduces Equity Inflows

An increase in market volatility has significantly impacted investments in midcap schemes. This has prompted a notable decrease in inflows in equity mutual funds. In February 2025, inflows dropped from ₹39,688 crore to ₹29,303 crore, thereby recording a 26% fall. However, despite these events, debt fund inflows are expected to stabilise eventually due to evolving market dynamics.

Growth in Debt Fund Assets

Notwithstanding the outflow, the total asset base of debt mutual funds surged from ₹17.06 trillion in January to ₹17.08 trillion in February. This indicates that although the number of withdrawals increased, growth in asset value occurred simultaneously. This was likely driven either by the appreciation in value of the underlying securities or by new investments.

Surge in Certain Investments Across Funds

Based on news reports, investments in liquid funds reached ₹4,977 crore. Investments in corporate bond funds and short-duration funds also surged to ₹1,065 crore ₹473 crore. This indicates continued investor interest in these securities.

Conclusion

In February 2025, MFs attracted over ₹40,000 crore, which was significantly lower than investments of ₹1.87 trillion recorded in January. This suggests that investors are adopting a cautious approach from investors in the mutual funds space. They are moving towards long-duration bonds in anticipation of RBI rate cuts.

Additionally, they are choosing gilt funds due to economic uncertainty. They are an attractive investment option since they have low credit risk and possess sovereign backing. Evolving market conditions are expected to stabilise these trends in the future.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

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