Debt funds see inflow of over Rs 94k cr in Dec-qtr on liquid funds infusion

Mutual funds focused on investing in fixed-income securities saw an inflow of over Rs 94,000 crore in three months ended December 2019, driven by infusion in liquid and overnight funds.

This comes following an outflow of Rs 5,061 crore in September quarter and fund infusion to the tune of Rs 19,691 crore in June quarter, according to a report by Morningstar.

It is interesting to note that half of the total inflows in the fixed- income segment came through overnight and liquid funds, where most of the institutional money is parked.

Liquid funds, with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon, witnessed flows amounting to Rs 28,983 crore during the quarter under review.

The segment had witnessed an outflow of Rs 15,862 crore in September quarter, typically due to advance tax payment requirements.

In addition, overnight funds, which invest in securities with maturity of one day, received inflows of about Rs 17,529 crore, higher than Rs 3,913 crore in the three months ended September 2019.

Further, banking and PSU category, which is considered as a safe option, received flows of Rs 16,856 crore in the quarter ended December 2019, a surge of 57 per cent from the previous three months.

As a mandate, such funds need to invest a minimum 80 per cent of their total assets in debt instruments of banks, public sector undertakings, or public financial institutions. This makes the category of investment relatively safer than some of the other fixed-income categories in terms of credit risk.

"Interestingly, when most of the fixed-income categories witnessed an exodus of flows caused by frequent downgrades to certain entities, the banking and PSU category continued to thrive as it kept getting healthy flows as investors chose to park money into safer options," the report said.

Inflows into corporate bonds dropped to Rs 5,359 crore from Rs 6,717 crore.

The asset base of debt mutual funds rose 11 per cent to Rs 11.28 lakh crore at December-end from Rs 10.15 lakh crore at the end of September.

The report said that various categories of fixed-income investments continue to face challenges either due to the fear of rising yields or credit downgrades to any (or some) of their underlying papers.

"The year 2019 will be long remembered by the numerous downgrades some of the entities witnessed. This in turn had a significant impact on the net asset values of portfolios, the impact of which is still being felt as investors move from risker debt funds to safer funds," it added.