Shorter duration debt schemes may now see good inflows on RBI's stance

Several debt fund categories saw net outflows in November as investors moved the money into equity funds after the markets came off as much as 9 per cent from the peak in October.

High redemptions were seen in overnight funds, low-duration funds, and floater funds.

“One of the reasons for net outflows from most of the categories could be investors preferring to redeem their debt investments to invest in equities, which after a strong rally, witnessed some correction in November, thus providing a good entry point,” said Himanshu Srivastava, associate director-manager research at Morningstar.

The benchmark indices ended November with 4 per cent losses — their worst monthly showing since March 2020 when the Covid-19 pandemic first roiled the markets.

Foreign portfolio investors (FPIs) turned aggressive sellers during the month amid concerns around the spread of the Omicron variant, the US Federal Reserve’s hawkish stance, and India’s expensive valuations.

Among debt categories, overnight funds saw net redemptions of Rs 12,123 crore, followed by low-duration funds and floater funds, which saw net outflows of Rs 6,674 crore and Rs 5,169 crore, respectively.

Even categories like ultra-short duration funds, money market funds, corporate bond funds, and banking & PSU debt funds saw net withdrawals last month.

Experts said some investors decided to redeem ahead of the monetary policy because the rate increase forecast began to fade in the wake of the new Corona virus variant.

Fund managers said shorter duration debt schemes may now see good inflows because the current policy stance of the Reserve Bank of India better suits them.

The overall debt category saw net inflows of Rs 14,893.08 crore in November, led by flows into liquid funds and medium-to-long duration funds and credit funds. Liquid funds and credit funds saw net inflows of Rs 53,251.28 crore and Rs 251.18 crore, respectively.

“Inflows into credit risk funds for the seventh month a row repose faith in asset manager’s abilities to learn from mistakes made during the last credit risk-related crisis and that industries are poised for higher quality growth.” Anand Dalmia, co-founder, Fisdom.

Equity-oriented schemes, on the other hand, saw net inflows of Rs 11,614.73 crore, with all sub-categories recording net inflows. The inflows were supported by the highest-ever inflows of Rs 11,005 crore via systematic investment plans (SIPs).