During the last week of the financial year FY23, which ended on March 31, debt mutual funds experienced a significant increase in inflows, as investors rushed to lock in higher returns in medium-to-longer duration debt funds.
According to an analysis by Value Research, investors pumped in about ₹40,000 crore into popular medium-to-longer duration debt funds between March 27 and 31, as reported by Business Standard.
The spurt in demand was driven by a rush among investors to lock in higher returns in debt funds before the change in taxation came into force.
In a surprise move on March 24, the government announced that debt mutual funds would no longer attract long-term capital gains tax (LTCG) or the indexation benefit. Instead, the gains made on such investments would be charged according to individual tax slabs.
However, the government allowed for the grandfathering benefit for investments made up to March 31, 2023. The rush by investors to invest in debt schemes before the deadline was expected, and debt mutual funds received a boost.
A Balasubramanian, CEO of Aditya Birla Sun Life AMC, said that the surge in inflows was due to the acceleration of the debt mutual fund flow towards the end of the financial year to take advantage of the LTCG benefits, the report said.
According to data released by Value Research, target maturity funds received the highest net inflows at ₹15,263 crore, followed by corporate bond funds, which received over ₹10,400 crore, it added.
Aditya Birla Sun Life's Corporate Bond Fund recorded the highest net inflow among schemes at ₹3,100 crore, followed by ICICI Prudential MF's All Seasons Bond Fund at ₹1,900 crore, as per the report.
This surge in inflows is expected to boost the assets under management (AUM) of debt funds, which have seen consistent outflows for the past 18 months, the report said.
In February alone, investors withdrew a net of ₹13,800 crore from debt funds, resulting in a decline of over 10% in AUM held by the debt schemes to ₹13 trillion in the past year. Experts attribute these outflows to an adverse rate hike cycle and the absence of liquidity with corporate houses, according to the report.
Investment advisors recommended debt funds to their clients in the run-up to the change in tax structure, suggesting that investors lock in higher post-tax gains.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
