&w=1024&resize=1024,0&ssl=1 "Debt Funds Lose Rs 1.13 Lakh Crore in September 2024: What Should Investors Do? | personal finances")
AMFI data showed that after two consecutive months of fund inflows, debt mutual funds lost Rs 1,13,833.95 crore in September as against an inflow of Rs 45,169.36 crore in August.
The outflow in September was due to an increase in corporate write-offs to cover second-quarter tax liabilities, according to an analysis by Nehal Meshram, senior analyst and research manager at Morningstar Investment Research India.
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In September, liquid funds saw a marked improvement with outflows of Rs 72,665.97 crore, which was 63.8% of the total outflows. This was followed by money market funds which recorded an outflow of Rs 23,420.84 crore and overnight funds recorded a net outflow of Rs 19,362.65 crore. Businesses typically withdraw their excess investable funds from liquid funds and money market funds before settling their quarterly tax obligations. Other very short duration debt segments, banking and PSUs, also saw outflows.
Corporate bond funds (Rs 5,039.07) were the top inflows in September 2024, followed by treasury bond funds, long-term funds and short-term funds.
“Investors have been favoring long-term funds for some time, driven by rising expectations of interest rate cuts. These funds are primed to benefit from potential rate cuts, and inflows may increase further.
The prospects for rate cuts are becoming clearer,” Meshram said.
Quarterly Review: Debt Funds Flows in the September 2024 Quarter
For the second consecutive quarter, debt funds recorded net inflows despite treasury write-offs at the end of the quarter.
“The net inflow into debt funds in the September 2024 quarter was Rs 0.51 trillion, which is much lower than the net inflow into debt funds of Rs 1.25 trillion in the June quarter 2024. However, the important thing is that given positive quarterly inflow trend, pre-quarter June 2024, debt funds in June and September 2024. “There is a clear trend in the last two quarters; treasury bonds at the short end of the curve are shifting to instruments with longer maturities,” IIFL brokerage said in a note.
Key flow drivers:
IIFL analysis shows that in September 2024, inflows were again driven by debt funds at the short end of the yield curve. Money market funds recorded a net inflow of Rs 15,411 crore during the quarter, liquid funds recorded a net inflow of Rs 10,990 crore, short-term funds recorded a net inflow of Rs 8,398 crore and corporate bond funds recorded a net inflow of Rs 7,968 crore Rs. Other categories that saw net inflows in the September 2024 quarter included treasury funds worth ₹ 5,481 crore, long-term funds worth ₹ 3,258 crore, very short duration funds worth ₹ 2,621 crore and short-term funds worth ₹ 2,191 crore . Other positive inflows this quarter were relatively small.
“When net inflows stood at ₹0.51 trillion in the quarter, outflow segments were certainly relatively subdued, but in the September 2024 quarter, 3 debt fund segments saw negative inflows. Bank and PSU funds saw net outflows (Rs 3,836 crore). , float funds (Rs 1,579 crore) and credit risk funds (Rs 1,416 crore) Clearly, the number of funds receiving redemptions and even the intensity of redemptions were much lower in the June and September quarters of 2024. The broader resonance of debt funds was more encouraging compared to the previous quarter,” IIFL noted.
Total AUM of all active debt funds increased to Rs 14.97 trillion at the end of the September quarter 2024; Rs 14.13 trillion, Rs 12.62 trillion and Rs 12.91 trillion in the previous three consecutive quarters respectively. The share of debt fund AUM in the overall AUM of open MFs till September 2024 is 22.32%; compared to 23.11%, 23.64%, 25.42% and 28.19% in the previous 4 consecutive quarters, respectively. The share of AUM in debt funds declined in September despite net inflows.
“The decline in the share of AUM in debt funds is progressive and can be attributed to the proportionate increase in the share of AUM in equity funds and other equity-linked funds,” IIFL noted.
What should your lending strategy be?
Government bond yields remain elevated with the 10-year Indian Government Bond (IGB) yield hovering around 7.2%, reflecting the high global interest rate environment and concerns over domestic inflation, Mira Asset Mutual Fund said in a note. However, a more stable inflation outlook and continued economic growth are supporting demand for government securities, particularly from domestic institutional investors such as banks and insurance companies. Corporate bond spreads remain relatively tight and investment-grade debt has demonstrated resilience to stable macroeconomic conditions. However, higher yields have increased borrowing costs for lower-rated companies, leading to selective issuance in the corporate bond market, he added.
“Overall, the Indian fixed income market remains attractive to investors seeking high returns with manageable risk, particularly in government securities and high-quality corporate bonds,” Mirae Asset MF said in a note.
ICICI Prudential MF says Indian bond yields will be subject to a push-pull effect until 2024. This may increase market volatility. Hence, there will be uncertainty about the direction of yields in 2024.
“We recommend managing the production and activity period under current conditions,” it said.
Motilal Oswal believes that investors should target the duration trend in fixed income portfolios to take advantage of the potential weakening in yields over the next 1-2 years.
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• Actively managed duration funds to capitalize on the growing fixed income trend
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