Debt mutual fund inflows in April at 2-decade high as investors seek safer bets

Mint

09-05-2025

Investors pumped money into debt mutual funds in April as they sought lower-risk options to ride out the market volatility and to rebalance their portfolios at the start of the financial year, taking net inflows into these funds to the highest in over two decades.
Net inflows into debt-oriented open-ended mutual fund schemes were at ₹ 2.19 trillion in April—the highest since January 2005, from when this data is available. The net inflows marked a sharp reversal from March, when debt-oriented schemes witnessed outflows of ₹ 2.02 trillion.
Within debt schemes, liquid funds saw the highest inflows of ₹ 1.18 trillion, followed by money market funds' ₹ 31,507 crore and ultra-short duration funds' ₹ 26,733 crore, data from the Association of Mutual Funds of India (AMFI) showed.
According to Suranjana Borthakur, head of distribution and strategic alliances, Mirae Asset Investment Managers (India), investors are favouring debt schemes for their stability and liquidity, especially in an environment marked by geopolitical uncertainties and market fluctuations.
'The significant inflows into arbitrage funds at ₹ 11,790 crore, a 9-month high, further underscores this preference for low-risk options, as investors seek to park funds securely while awaiting clearer market signals,' said Borthakur.
In the short term, investors are likely to continue favouring shorter-end debt schemes and arbitrage funds over equity schemes until the volatility triggered by the India-Pakistan conflict subsides, as these offer stability and lower risk, Borthakur added.
Initially, the volatility in India's stock market was driven by concerns over US President Donald Trump's reciprocal tariff policies, which raised fears of increased capital flows to US dollar markets, experts said.
'However, the phase of Trump-related tariffs may be easing soon as bilateral discussions with major countries have started,' said Seemant Shukla, chief executive, Quantum AMC.
India and the US are working to finalise the first phase of a bilateral trade agreement by September-November, which could soften the potential impact of Trump's new tariffs.
On 6 May, India struck a landmark free trade agreement with the UK that promises to unlock major economic gains for India by eliminating tariffs on 99% of Indian exports to Britain, covering nearly 100% of the trade value.
The escalating conflict between India and Pakistan, however, would have an impact on volatility and markets in the short run, said Shukla.
Portfolio rebalancing also had a significant influence on investors turning to debt mutual funds.
'One of the key reasons for the sharp surge in debt mutual fund inflows in April is the beginning of the financial year, a period when corporates and institutions typically reallocate their portfolios,' said Gaurav Goyal, head–sales and marketing, Canara Robeco AMC, and the company's spokesperson on AMFI data.
This has led to significant investments in liquid, overnight, money market, and ultra-short-term funds, he said.
Net inflows into equity mutual fund schemes dropped to a one-year low of ₹ 24,269 crore in April, marking a 3.2% decline on a month-on-month basis. That was the fifth straight month of declining inflows into equity schemes.
In times of heightened market volatility and geopolitical uncertainty, it is common for investors to shift toward conservative assets such as debt funds, said Feroze Azeez, joint-chief executive, Anand Rathi Wealth Ltd. However, he added that such trends are typically short-lived.
'Historical patterns suggest that the impact of geopolitical tensions on equity markets tends to be temporary. Over the long term, market performance is more strongly influenced by economic fundamentals and corporate earnings,' said Azeez.
As the current wave of war-led uncertainty stabilizes, said Azeez, it is likely that investors will gradually reallocate towards equity schemes.
Within equity schemes, net inflows were highest in flexicap schemes at ₹ 5,541 crore. This was followed by smallcap and midcap funds with net inflows of ₹ 3,999 crore and ₹ 3,313 crore, respectively.
Monthly inflows into mutual funds via systematic investment plans surged to an all-time high of ₹ 26,632 crore in April. This was driven by a steady increase in the number of contributing accounts, which now total 83.8 million.