Debt mutual fund sees outflow of Rs 32,722-cr in May on rising interest rates – Jammu Kashmir Latest News | Tourism
New Delhi, June 13: Mutual funds focused on investing in fixed income securities saw a net outflow of Rs 32,722 crore in May following the Reserve Bank of India’s (RBI) stance on monetary policy becoming hawkish to fight inflation driven by global factors.
This follows an inflow of Rs 54,656 crore in April, according to data from the Association of Mutual Funds in India (Amfi).
Moreover, there has been a reduction in the number of folios from 73.43 lakh to 72.87 lakh folios between April and May 2022.
Debt funds have always been considered a safer investment option, especially when markets are volatile. However, rising interest rates, a volatile macroeconomic environment and higher yields likely impacted investors’ investment preferences in debt markets.
Kavita Krishnan, Senior Analyst – Manager Research, Morningstar India, said rising food, commodity and fuel prices, among other macro factors like the war in Ukraine, likely led to a 40 bp rate hike. (bps) in May 2022. Additionally, RBI’s focus on fighting inflation has led to expectations of further rate hikes in the future.
“Given the current scenario and broader market expectations, most categories of debt funds saw outflows, with the exception of overnight and liquid funds. Single-digit returns and a strong preference for other asset classes like equities also likely had an impact on flows to debt funds,” she added.
Making a similar statement, Alok Agarwala, Executive Vice President and Head of Research, Bajaj Capital, said the outflows could be mainly attributed to RBI’s change in stance during the previous months’ off-cycle policy meeting in which RBI not only raised the policy rate by 40 basis points to 4.40. percent but also increased the CRR (Cash Reserve Ratio) rate by 50 basis points to 4.5 percent.
“At the same policy meeting on May 4, RBI emphasized ‘retreat from accommodation’ to ensure inflation remains on target going forward. It rattled bond investors as he indicated that even now the Indian central bank would not want to be seen behind the curve and let inflation run rampant.This leads to an upward movement in yield across the curve, resulting in value losses of market in the investor’s portfolio in most debt categories (except Overnight and Liquid Fund),” he added.
Of the 16 categories of fixed income securities or debt funds, 12 recorded net outflows in May. Net inflows were only seen in four categories – Overnight Fund, Liquid Fund, Gilt Fund & Gilt Fund – with a constant duration of 10 years.
Money market funds recorded a large outflow of Rs 14,598 crore in this category, followed by short duration funds (Rs 8,603 crore), ultra short duration funds (Rs 7,105 crore) and low duration funds (Rs 6716 crore).
“This move could be a sign of investors’ short-term monetary needs due to the current market scenario of rising repo rates and inflation rate,” said Priti Rathi Gupta, Founder of LXME. (PTI)