Mutual funds focussed on fixed-income securities witnessed 46 per cent month-on-month jump in investment to ₹63,665 crore in May, mainly due to robust inflow in liquid schemes and measures taken by the RBI. Most individual categories that invest in fixed-income securities or debt funds saw inflows.
However, medium duration, overnight, credit risk and dynamic bond funds saw withdrawals.
According to Association of Mutual Funds in India (Amfi), MFs that invest in fixed-income securities saw an inflow to the tune of ₹63,665 crore last month as compared to an inflow of ₹43,431 crore in April.
In March, the segment had witnessed a massive outflow of ₹1.95 lakh crore, an inflow of ₹28,000 crore in February and ₹1.09 lakh crore in January.
Of the total inflow seen last month, liquid funds with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon, attracted a staggering investment of ₹61,870 crore.
"(The) RBI's measures to deal with the trouble in a few debt funds have shown clear success in instilling confidence in investors as investments in debt funds in May are back to levels similar to before," said Harsh Jain, co-founder and COO of Groww.
Amfi CEO NS Venkatesh said that investors are taking advantage of conducive interest rates trend. Besides, shift towards high quality AAA rated has resulted in steady rise in the net flows in debt schemes.
The Reserve Bank of India, in late April, announced a ₹50,000 crore special liquidity facility for mutual funds in order to ease liquidity pressure in the sector.
A total of ₹15,880 crore was taken out from overnight funds, which invest in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon.
Apart from overnight funds, a net withdrawal of ₹5,173 crore was seen from credit risk funds last month, which was much lower than about ₹19,000 crore witnessed in April.
"Credit risk concerns have ebbed, following regulatory support, redemptions have come down and we would see investors allocating higher quantum of savings to high quality debt paper," Venkatesh added.
Credit risk funds were under tremendous pressure over the last year because of a spate of downgrade because of several instances where corporate bond papers with the highest rating were directly downgraded to a default.
In addition, investors pulled out 1,520 crore in May from medium duration funds and ₹75 crore from dynamic bond funds.
On the other hand, investors pumped ₹5,256 crore in equity mutual funds. This comes amid the broader market witnessed heavy volatility on concerns over the impact of coronavirus.
Overall, the mutual fund industry witnessed a net inflow of over ₹70,800 crore across all segments in May.