Debt-oriented mutual funds experienced unprecedented net outflows of Rs 2,02,663 crore in March 2025, marking a significant increase from Rs 6,526 crore in February.
According to data from the Association of Mutual Funds in India (AMFI), this sharp rise was primarily driven by corporates and institutional investors withdrawing funds to meet year-end tax obligations and other financial responsibilities. This trend underscores the cyclical nature of fund allocations during the fiscal year-end.
All 16 categories of debt funds faced net outflows, indicating widespread redemption pressure across the fixed-income segment. Liquid funds were hardest hit, with outflows totalling Rs 1,33,034 crore, over 65% of the total debt fund withdrawals for the month.
Overnight and money market funds also suffered substantial redemptions, with outflows of Rs 30,015 crore and Rs 21,301 crore, respectively. These short-duration categories are traditionally used by companies for parking surplus cash and are thus more susceptible to liquidity needs during fiscal endpoints.
Despite a challenging March, the financial year 2025 was robust for debt-oriented open-ended funds, registering net inflows of Rs 1,38,380 crore. This is a stark reversal from the previous year’s outflows of Rs 23,097 crore. Nehal Meshram, Senior Analyst at Morningstar Investment Research India, attributes this turnaround to favourable macroeconomic factors, including easing inflation and potential interest rate cuts. The Reserve Bank of India’s supportive stance and global uncertainties have pivoted investors towards high-quality fixed-income instruments for capital preservation.
Akhil Chaturvedi, Executive Director at Motilal Oswal AMC, noted that “selling in debt at the shorter end is mostly on account of advance tax and year-end considerations.” However, at the longer end, “investors seem to have booked profits after the recent rally in long-dated bonds,” he added. This reflects a strategic shift among investors balancing immediate liquidity concerns with long-term yield expectations as bond yields fluctuate.
As the 2026 fiscal year begins, there is an optimistic outlook for debt fund inflows, particularly if bond yields continue to soften. The potential for improved returns from duration strategies could reignite interest in these funds. Analysts suggest that a favourable macroeconomic environment, coupled with stable investor confidence in longer-duration funds, may drive growth in this sector in the coming months.
The RBI announced a 25 basis point reduction in the policy repo rate to 6 per cent on Wednesday, aimed at lowering borrowing costs and home loan rates for investors. This decision, along with increased liquidity in the financial system, is expected to boost disposable income for consumers and stimulate demand in the economy.
In light of potential global disruptions due to ongoing tariff developments, Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset Investment Managers (India), anticipates further cuts in future policies. While bond yields initially rose post-announcement, they are projected to gradually decrease in the coming period.
The reduction in interest rates would assist funds in increasing their exposure to longer-duration securities, which are expected to experience a rise in bond prices. Nevertheless, Sandeep Bagla, the CEO of TRUST Mutual Fund, advises investors to adhere to short-duration bonds.