Debt MFs see `84,202-cr outflow in March quarter on redemption from liquid funds

New Delhi: Debt mutual funds witnessed an outflow of Rs 84,202 crore in three months ended March 2021, with liquid schemes contributing 56 per cent of the withdrawal, according to a Morningstar report.

This was the only quarter in 2020-21 that saw outflow in the fixed-income or debt category.

The outflow comes following an inflow of Rs 1.69 lakh crore in December quarter, Rs 35,522 crore in September quarter and Rs 1.09 lakh crore in June quarter.

According to the report, fixed-income category had faced a challenging atmosphere since the downgrade to IL&FS back in 2018.

A spate of downgrades to other entities following the IL&FS crisis left some of the fixed-income funds in a serious liquidity crunch as redemptions in certain categories explode, it added.

"Given the uncertainty in the economy caused by COVID-19, investors are again moving toward risk-averse assets in the fixed-income segment during volatile times, as they tend to provide better protection to their capital relative to some credit strategies," the report noted.

The latest outflow pulled the asset base of the fixed-income category for March 2021 quarter to Rs 13.28 lakh crore, which was 6 per cent lower than the previous quarter when the total asset base was Rs 14.06 lakh crore.

The liquid, ultra-short-term, money market, and overnight fund categories constitute a substantial portion of the total assets (about 44 per cent) within the fixed-income category, the report said.

Given its significant contribution, even a slight change in the amount of flows in percentage terms in these segments can make a huge difference in the overall flows within the fixed-income category, it added.

Around 56 per cent of the total outflow during the quarter under review in the fixed-income segment came through liquid funds, where most of the institutional money is parked.

Liquid funds witnessed net withdrawal of Rs 47,398 crore during the quarter under review typically due to advance tax payment requirements. This comes following an inflow of Rs 16,270 crore.

In addition, low duration funds and short duration funds saw outflow to the tune of Rs 21,044 crore and Rs 12,419 crore respectively.

Further, banking & PSU category, which is considered as a safe option, witnessed outflow of Rs 6,427 crore as opposed to receiving net flows of Rs 11,500 crore in the previous quarter.