Driven by investments in liquid schemes as also banking and PSU funds, debt mutual funds saw an inflow of Rs 1.1 lakh crore in three months ended June 2020 after witnessing massive redemptions in the preceding quarter.
Most individual categories that invest in fixed-income securities, or debt funds, saw inflows. However, credit risk, overnight, ultra-short duration, medium duration and dynamic bond funds saw withdrawals.
The positive inflow pushed the asset base of debt mutual funds to Rs 11.63 lakh crore at June-end from Rs 11.5 lakh crore at the end of March, according to data with Association of Mutual Funds on India (Amfi).
As per the data, inflows into debt mutual funds were at Rs 1.1 lakh crore in the three months ended June, compared to outflows of Rs 1.13 lakh crore in the January-March quarter.
Investment into such funds was at Rs 19,690 crore during the quarter ended June 2019.
Nearly 80 per cent of the total inflows during the quarter under review in the fixed-income segment came through 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 the shorter horizon, witnessed inflows amounting to Rs 86,493 crore during the quarter under review. The segment had witnessed an outflow of Rs 94,180 crore in the March quarter, typically due to advance tax payment requirements.
In addition, banking and PSU category, which is considered as a safe option, received inflows of Rs 20,912 crore in the quarter ended June 2020, compared to a withdrawal of Rs 66 crore in 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.
Further, investors poured in Rs 18,738 crore in corporate bonds.
However, credit risk funds, which invest 65 per cent of the investment corpus in less than AA-rated paper, saw an outflow to the tune of Rs 25,905 crore.
Such funds witnessed a pull out of Rs 19,239 crore in April, Rs 5,173 crore in May and Rs 1,494 crore in June.
Huge outflow in April was mainly due to redemption pressure and lack of liquidity issues. Moreover, shutdown of six debt schemes by Franklin Templeton Mutual Fund added to the woes.
Given the recent credit crisis that adversely impacted fixed-income markets, investors continue to tread a line of caution by staying away from riskier investments. Hence categories such as credit risk and medium duration, which also comprise funds that take credit bets, continue to witness net outflow, said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.
On the other hand, funds that do not cut corners with credit risk, especially from categories such as money market, short duration, corporate bond and banking and PSU, continue to gain investor traction, he added.
Apart from debt funds, investors pumped in Rs 11,710 crore in equity-oriented mutual funds during the quarter under review, against an investment of Rs 30,703 crore in the March quarter.
The slump was mainly on account of market volatility and uncertain economic environment due to the COVID-19 pandemic.