Debt mutual funds continue to lose money for the third straight month, data made public by Association of Mutual Fund Industry (AMFI) showed. The only saving grace being the decline quantum of outflows.
AMFI data showed that in the month of April 2022, debt funds lost ₹10,800 crore as against net outflows of ₹63,900 crore in March. Prayesh Jain, Nitin Aggarwal and Urmila Bohra of Motilal Oswal, in a report dated May 10, 2022, said, “Debt categories such as Overnight, Ultra Short duration and Floater fund saw net inflows; however, they were offset by outflows in Fixed Term plan (close-ended), Corporate Bond and Banking & PSU funds.”
Asset Under Management (AUM) under Debt schemes fell 13% year-on-year (YoY) and 2.3% month-on-month to ₹9,10,000 crore. Liquid funds saw strong net inflows of ₹44,900 crore, the highest in last five months, primarily due to a slowdown in redemptions. AUM under Liquid funds grew 5% both on a year-on-year and month-on-month basis to ₹5,30,000 crore in April 2022."
Analysts say there are multiple factors at play leading to debt funds losing interest with investors.
"Single digit returns from debt funds have proved to be detrimental, especially considering bond yields over the long and medium term, Kavitha Krishnan, Senior Analyst - Manager Research, Morningstar India told Economic Times.
Apart from this, high inflation, rise in bond yields and rising interest rates are other reasons contributing to debt fund outflows.
Bonds and, by extension, debt funds have an inverse relationship with interest rates. When interest rates rise, bond prices fall. The reason is that if interest rates rise, older bonds become less valuable, stock-broking platform Zerodha wrote in a tweet.
Analysts believe that debt-oriented schemes are witnessing considerable outflows as investors steer clear of the lower yields. These funds, in fact, have been under intense pressure for quite some time now. This is due to an array of factors which include growing inflation, rise in bond yields, and uncertainty on the rate front, MintGenie reported earlier.
There has been a decrease in the number of folios added to debt funds in April as well. Data show that 1,06,000 folios were lost in the given month as against 20,000 in March.
AMFI data reveal net outflows of to ₹10,800 crore versus net outflows of ₹63,900 crore in March 22.
Equities continue to be strong
However, even with the falling markets, investors continue to lap up equity mutual funds. The total net inflows in the mutual fund industry in the month of April 2022 stood at ₹72,800 crore. Systematic Investment Plan (SIP) flows, too, stood steady at ₹11,900 crore as against 12,300 crore in March of 2022.
On the whole, equity mutual funds saw inflows of ₹15,600 crore as against ₹28,300 crore in previous month. The Motilal duo said, “Funds raised in NFOs were merely at ₹3100 crore, indicating strong flows in the existing schemes. Equity funds across all cohorts saw net inflows and Equity AUM grew 5% month-on-month to ₹13.9 lakh crore despite weak equity markets.”
Passive scheme investments continue to grow
Investments in passive funds were at ₹15,900 crore in April 2022 versus a strong influx of money to the tune of ₹19,400 crore in March 2022. The assets under management in most passive schemes have gone up on a year-to-year and month-to-month basis. The number of folio additions in ETFs went down sharply to 0.5 million in April 2022 from 1.2 million for both the months of March and April 2022.