Money fears? Debt mutual funds see Rs 28,000 cr outflow in February

Mutual funds focussed on investing in fixed-income securities saw an outflow of nearly Rs 28,000 crore in February, after registering an infusion of over Rs 1 lakh crore in the preceding month, mainly on account of a massive pullout from liquid funds.

Debt funds are considered to be less risky, with investors taking comfort in being able to hedge their risks by parking hard-earned money in instruments that provide better returns than bank fixed deposits.

However, a spate of multiple rating downgrades and the aftereffects impacted the flows in the debt market.

Although most individual categories that invest in fixed-income securities or debt funds saw inflows, outflows from liquid, overnight and credit risk categories were significant enough to negate most of the positive flows in other segments.

According to Association of Mutual Funds in India (Amfi), mutual funds that invest in fixed-income securities saw an outflow to the tune of Rs 27,940 crore last month compared with an inflow of Rs 1.09 lakh crore in January.

The outflow has pulled the asset base of debt mutual funds to Rs 12.22 lakh crore by February-end from Rs 12.42 lakh crore at the end of January.

A total of Rs 43,825 crore was taken out from liquid funds, which invest in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon.

The withdrawal from overnight schemes, which invest in securities with a maturity of one day, stood at Rs 1,474 crore and the same for credit risk funds, that invest in riskier debt securities, was at Rs 637 crore.

"Credit risk funds have been under tremendous pressure over the last year because of a spate of downgrades. Instances where corporate bond papers with the highest rating have been directly downgraded to a default have thrown a spanner in the works," Morningstar said.

Moreover, investors are now opting to invest in banking and PSU funds and corporate bond funds, which have a high allocation to highest rated bonds.

The banking and PSU funds saw inflows to the tune of over Rs 3,200 crore, while the corporate bond category received flows worth Rs 2,841 crore.

On the other hand, investors pumped Rs 10,730 crore in equity mutual funds, making it the highest level in 11 months, even as the broader market witnessed heavy volatility amid concerns over the impact of coronavirus.

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Overall, the industry witnessed a net outflow of Rs 1,985 crore across all segments last month. This comes following an inflow of Rs 1.2 lakh crore in January.