Debt fund near ₹20 trillion milestone as flows revive and AUM durge

Assets under management (AUM) in debt mutual fund (MF) schemes are closing in on the ₹20 trillion mark after growing more than 20 per cent over the past year, buoyed up by renewed inflows and mark-to-market (MTM) gains. 

As of June 2025, active debt funds managed ₹17.6 trillion, while passive debt schemes accounted for another ₹2.1 trillion. The combined AUM stood at ₹19.7 trillion — up 21 per cent from ₹16.2 trillion in June 2024. 

Debt fund AUM grew at the same pace as equity funds over this one year. 

This recovery follows three years of sluggish growth, during which debt fund AUM rose just 5 per cent between June 2023 and June 2024. 

Analysts attribute the recent pickup in AUM to stronger inflows, backed by improved returns and a more favourable outlook for certain segments of the debt market, such as corporate bonds. Ample banking system liquidity has also channelled more money into liquid and other short-duration funds. 

“After a difficult 2024, the fixed-income category has already seen net inflows of ₹1.21 trillion in the first half of 2025, pointing to 

a possible structural shift,” said Nehal Meshram, senior analyst for manager research at Morningstar Investment Research India. 

Money market funds led the charge between June 2024 and June 2025, adding over ₹86,000 crore in assets. Liquid funds followed with nearly ₹80,000 crore, while corporate bond funds added close to ₹53,000 crore. 

With the rate-cut cycle, which favoured longer-duration bonds, likely behind us, investor interest has tilted towards short-horizon schemes. Analysts say the current risk/reward balance supports the short end of the yield curve. 

“Spreads on high-grade bonds and select credits at the shorter end remain attractive. With global volatility expected to reset market expectations, duration strategies will need to stay nimble. Short-tenor, high-grade bond funds continue to offer higher accruals, wider spreads, and a more optimal risk/reward profile — both in the coming months and into next year,” SBI MF said in a note earlier this month.