Flood of money in short-term debt schemes new headache for NBFCs

Systemic risk for mutual funds as well in case there are large-scale redemptions

Mutual funds are facing a problem of plenty, with an avalanche of money pouring into shorter tenure debt funds in the past few months. The situation is compelling borrowers such as non-banking financial companies (NBFCs) to seek alternative sources of funds and might pose a systemic risk for MFs in case of large-scale redemptions. 

Inflows into long-tenure debt funds have stalled since August 2018, and recent markdowns and scheme rollovers is making matters worse. Net inflows in income/debt oriented schemes for April stood at Rs 1.01 trilliong, with inflows for schemes with maturity up to three years at Rs 1.15