Debt mutual funds see ₹15,908 crore outflow in May amid redemptions

Debt mutual funds failed to retain investor confidence in May, recording a net outflow of ₹15,908 crore during the month. This marks a sharp reversal from April, when the category witnessed a strong net inflow of ₹2.19 lakh crore. The outflows in May were primarily driven by significant redemptions in liquid and overnight fund categories. Despite the overall decline, certain segments within the debt mutual fund space continued to attract investor interest. Notably, corporate bond funds recorded a net inflow of ₹11,983 crore, reflecting renewed investor confidence in high-quality fixed-income instruments.

 

Liquid, overnight funds see sharp outflows

 

According to data from the Association of Mutual Funds in India (AMFI), liquid funds witnessed significant outflows in May, with investors pulling out ₹40,205 crore. This is in stark contrast to April, when the category recorded net inflows of ₹1,18,656 crore. Similarly, overnight funds saw a net outflow of ₹8,120 crore in May, compared to net inflows of ₹23,899 crore in the previous month.

 

Both these categories typically attract large institutional investments and are highly sensitive to short-term liquidity requirements and treasury management decisions.

 

Why are investors exiting debt funds?

 

Suranjana Borthakhur, head of distribution & strategic alliances, Mirae Asset Investment Managers (India), noted that the net outflow of ₹15,908 crore from debt mutual funds in May 2025 may partly be attributed to seasonal redemption pressure related to advance tax payments.

 

“15 June marks a major deadline for advance tax payments, particularly for corporates. To prepare for these obligations, companies often withdraw investments from liquid and ultra short-term debt funds during May,” she explained.

 

A K Nigam, director at BPN Fincap, added, “Investors are increasingly shifting from debt to equities. They are anticipating that a potential cut in interest rates will lead to better returns in the equity market.”

 

This trend, Nigam said, reflects investor expectations that lower interest rates will spur economic growth and boost corporate earnings, thereby making equities a more attractive investment option.

 

Key drivers

 

Interest rate cuts: Lower interest rates can stimulate economic growth, increase corporate profits, and boost equity markets.

 

Higher returns: Equities are expected to offer better returns than debt in a low-interest-rate environment.

 

Economic growth: Investors anticipate that lower interest rates will lead to increased economic activity, benefiting equities.

 

This shift highlights the dynamic nature of investment decisions, influenced by macroeconomic factors and market expectations.

 

Selective debt funds gain investor favour

 

Despite the overall decline in the debt mutual fund segment, several categories witnessed renewed investor interest in May. Corporate bond funds led the trend with net inflows of ₹11,983 crore, which analysts attribute to attractive yields and a stable credit outlook.

 

Money market funds also saw strong inflows, recording ₹11,223 crore during the month. Meanwhile, low duration and ultra short duration funds continued to maintain positive momentum. Low duration funds attracted net inflows of ₹3,133 crore, while ultra short duration funds registered inflows of ₹1,847 crore.