Debt mutual funds bleed in March: All 16 categories record net outflows

The Indian mutual fund industry saw net outflows of Rs 1.64 lakh crore in March on account of selling in debt mutual funds.

Debt-oriented mutual funds registered net outflows of Rs 2,02,663 crore in March 2025 — a dramatic spike compared to Rs 6,526 crore in February, according to AMFI data. The large-scale withdrawal was largely driven by seasonal trends, as corporates and institutional investors pulled out funds to meet year-end tax payments, finalize financial statements, and fulfill other fiscal obligations.

 

All 16 debt fund categories experienced net outflows in March, signaling widespread redemption pressure across the fixed income segment. 

 

• Liquid funds were hit hardest, with outflows of Rs 1,33,034 crore — accounting for more than 65% of the total debt fund outflows for the month. 
• Overnight funds followed, with redemptions amounting to Rs 30,015 crore,
• Money market funds saw Rs 21,301 crore in net outflows.

 

These short-duration categories are typically used by companies to park surplus cash and are most vulnerable during quarter- and year-end cycles due to liquidity needs. 

"Selling in debt at shorter end is mostly on account of advance tax and year end considerations. At long end, investors seem to have booked profits after recent rally in long dated bond," said Akhil Chaturvedi, Executive Director and Chief Business Officer, Motilal Oswal AMC.

 

 

Meanwhile, longer-duration categories like medium- to long-duration and gilt funds saw relatively muted redemptions. Investor confidence in these funds remained stable amid expectations of an easing interest rate cycle and declining inflation, which could boost capital gains on bond holdings in the coming months.

 

The March pullback in debt funds reflects not just cyclical factors but also highlights a shift in investor strategy, balancing short-term liquidity needs with long-term yield expectations. 

 

"The financial year 2025 proved to be a strong year for debt-oriented open-ended funds, which saw substantial net inflows of Rs 1,38,380 crores, a sharp reversal from the outflows of Rs 23,097 crore recorded in the previous fiscal year. This turnaround can be attributed to a confluence of favorable macroeconomic factors, including easing inflation, potential interest rate cut expectations, and improved liquidity conditions. With the Reserve Bank of India maintaining a cautious yet supportive stance, investors increasingly turned to debt funds for capital preservation and predictable returns. Additionally, the flight to safety amid equity market volatility and global geopolitical uncertainties further strengthened demand for high-quality fixed income instruments," said Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India.