Debt funds see over 1 lakh crore outflow in September as liquidity adjustments drive redemptions
Fixed-income mutual funds witnessed a sharp reversal in September, with net outflows totaling ₹1.02 lakh crore, a significant jump from modest redemptions of ₹7,980 crore in August, according to AMFI data.
Analysts attribute the decline mainly to quarter-end liquidity adjustments and advance tax-related outflows by institutional investors.
The liquid fund category bore the brunt of redemptions, with ₹66,042 crore withdrawn, while money market funds saw ₹17,900 crore outflows.
Overnight funds, in contrast, registered modest inflows of ₹4,279 crore, reflecting short-term parking of cash amid broader liquid fund redemptions.
“Most major debt categories — including corporate bond, PSU debt, floater, gilt, and short-duration funds — experienced outflows, likely due to recent rate cuts and lower return expectations,” said Naval Kagalwala, COO & Head of Products, Shriram Wealth.
“Investors are recalibrating portfolios, with gold and other ETFs drawing the highest inflows across mutual fund categories,” Kagalwala said.
Short-duration and ultra-short duration funds also faced pressure.
Ultra-short duration funds saw outflows of ₹13,606 crore, while low-duration and short-duration funds recorded net redemptions of ₹1,253 crore and ₹2,173 crore, respectively.
Medium- and long-duration categories remained largely muted, with medium-duration funds down ₹157 crore and medium-to-long duration funds posting a small inflow of ₹103 crore.
“September’s debt fund flows reflect a temporary, liquidity-driven correction rather than a structural shift,” noted Nehal Meshram, Senior Analyst, Morningstar Investment Research India.
“Institutional redemptions dominated, while retail participation in shorter-tenor accrual-oriented products remained steady. As liquidity conditions normalize, allocations are likely to remain focused on high-quality, short-duration strategies, with selective interest in longer-duration products depending on future rate-cycle clarity.”
Credit risk and gilt funds remained under pressure, with redemptions of ₹256 crore and ₹615 crore, respectively, indicating a continued cautious stance toward lower-rated and longer-tenor instruments.
Analysts say the trend highlights a rotation within the fixed-income space, driven by tactical adjustments rather than panic selling. Short-term accrual and high-quality debt strategies continue to attract retail investors, even as institutional participants recalibrate for quarter-end and tax-season requirements.