Debt MFs see Rs 1.2 trn outflow in Q4 as withdrawals continue: Report

Mutual funds focused on investing in fixed-income securities saw an outflow of Rs 1.2 crore in the March 2022 quarter on massive withdrawal from segments, said a report by Morningstar India

Mutual funds focused on investing in fixed-income securities saw an outflow of Rs 1.2 crore in the March 2022 quarter on massive withdrawal from segments, such as liquid, short duration, and corporate bond funds, a report by Morningstar India said on Monday.

This has taken the net outflow from the category to Rs 68,471 crore in 2021-22 compared to the net inflow of Rs 2.3 lakh crore in the preceding financial year.

The debt MF category had registered an infusion of Rs 21,277 crore in the December 2021 quarter.

Out of the 16 fixed-income or debt fund categories, 15 witnessed net outflows during the quarter ended March 2022. Only the overnight fund segment saw a fund infusion of Rs 7,802 crore during the quarter under review.

According to the report, debt funds saw net outflows to the tune of Rs 1.15 lakh crore in March, and Rs 8,274 crore in February, whereas January saw net inflows of Rs 5,087 crore.

"Typically, the last quarter of a fiscal year always has net outflows in the open-end fixed-income category as a lot of funds get withdrawn by institutional investors from categories like liquid, ultra short term, money market, and so on for payment of taxes," Morningstar India said.

The outflow has pulled the asset base of debt mutual funds to Rs 13 lakh crore by March-end 2022 from Rs 14.05 lakh crore at the end of the preceding quarter.

The liquid, ultrashort-term, money market and overnight fund categories constitute a substantial portion of the total assets (about 50 per cent) within the debt fund category.

Given its significant contribution, even a slight change in the quantum of flows in percentage terms can make a huge difference in the overall flows within the category. The liquid and the overnight categories also stand out because of the magnitude of institutional money that flows into them.

Short duration funds experienced net outflows of Rs 24,035 crore, making it the fifth consecutive quarter in which there has been a net withdrawal. The category also witnessed the highest exodus of flows during the March 2022 quarter. This was followed by a corporate bond fund that saw a net withdrawal of Rs 23,122 crore.

A total of Rs 18,728 crore was taken out from liquid funds, which invest in cash assets such as treasury bills, certificates of deposit and commercial paper for a shorter horizon.

Generally, debt funds are considered to be less risky, with investors taking comfort in being able to hedge their risks by parking hard-earned money in instruments that provide better returns than bank fixed deposits.

On the other hand, investors pumped Rs 63,057 crore in equity mutual funds during the quarter ended March 2022 even as the broader market witnessed heavy volatility amid a deteriorating geopolitical environment following Russia's invasion of Ukraine.

Overall, mutual funds saw net outflows to the tune of Rs 3,900 crore during the fourth quarter of 2021-22. In the previous quarter, net inflows stood at Rs 81,915 crore.