Mutual funds focussed on fixed-income securities witnessed a multi-fold surge in investment to Rs 91,392 crore in July, with short duration funds contributing a major chunk of the infusion. Barring credit risk funds, all the individual categories that invest in fixed-income securities or debt funds saw inflows, data with the Association of Mutual Funds in India (Amfi) showed.
Given the current interest rate scenario, investors are largely focusing on fixed income categories having a relatively shorter duration profile. In addition to that, funds with pristine credit quality, especially from categories such as money market, short duration, corporate bond and banking and PSU, continue to gain traction, highlighting investors" preference for safety in this segment.
According to the data, mutual funds (MFs) that invest in fixed-income securities saw an inflow of 91,392 crore in July, as compared to Rs 2,862 crore inflow in June. The inflow stood at Rs 63,665 crore in May and Rs 43,431 crore in April. "This is the continuation of a trend wherein investors tend to make a comeback in the months following the quarter-end month.
In June, given it was a quarter end month, the flows into fixed-income funds came down significantly, largely on the back of huge net outflows from the liquid fund category. "Expectedly, liquid fund category received the second-highest net inflow in July, after low duration category, which received the highest flows," said Himanshu Srivastava, Associate Director – Manager Research at Morningstar India.
Joseph Thomas, head of research at Emkay Wealth Management, said the net inflows into debt funds show a healthy uptick, and a major chunk of these inflows has been into funds with a short duration. "It is very clear that investors are avoiding longer duration probably due to the expectation that there is likely volatility at the long end of the curve emanating from the issue of long-dated papers on the Gilts" primary auctions," he said.
He, further, said short duration funds, corporate bond funds, and banking and PSU funds continue to attract investor attention due to the hunt for superior risk-adjusted returns, as these funds have the most appropriate duration positioning and excellent credit risk profile. Among fixed-income securities, low duration funds saw an infusion of Rs 14,219 crore, liquid schemes (Rs 14,055 crore) and corporate bond funds (Rs 11,910 crore).
In addition, the ultra-short duration category witnessed a net infusion of Rs 9,332 crore, inflow in money market funds stood at Rs 9,067 crore and banking and PSU segment saw an investment of Rs 6,323 crore. "Such inflows show that investors have become comfortable investing in debt funds again after the big fiasco in April 2020.
RBI"s measures to instill confidence in debt fund investors seem to be showing results," Groww Co-founder and COO Harsh Jain said. However, credit risk funds saw an outflow of Rs 670 crore in the period under review, which was much lower than a withdrawal of Rs 1,494 crore in June, Rs 5,173 crore in May and Rs 19,239 crore in April.
"Given the recent credit crises, that adversely impacted fixed income markets in the earlier part of the year, Investors continue to tread a line of caution by staying away from riskier investments. Hence, the credit risk category continues to witness net outflows, although the pace has slowed down significantly," Srivastava said. The assets under management of the debt mutual funds rose to Rs 12.64 lakh crore in July-end from Rs 11.63 lakh crore in June-end.