Notwithstanding an outflow of ₹1.01 lakh crore last month, inflows into the debt schemes during the first half of this fiscal was much better than the same period last year.

Interestingly, inflow into the debt funds in the first half ended September this year was at ₹72,556 crore against an outflow of ₹81,491 crore logged in the same period last year, on the back of improved retail participation.

The assets under management of debt funds increased five per cent to ₹13.05 lakh crore as of September-end 2023 against ₹12.42 lakh crore as of September-end 2022 despite large institutional investors pulling out money intermittently.

The rise in interest rate and the concern on high equity valuation amid looming economic uncertainty driven by geopolitical developments has forced many investors to park their money in short-term debt funds before ploughing in equity schemes. 

Prathit Bhobe, Managing Director, Tata Asset Management, told businessline, though inflow into debt funds were very volatile it was much better compared to last year on higher interest rate and attractive yields.

Moreover, he said the yield to maturity has played in favour of debt mutual fund investors and attracted good inflows especially in the short-term schemes.

The inflow into ultrashort term funds increased to ₹9,935 crore in first half of this fiscal against an outflow of ₹418 crore in same period last year, while that in low duration funds was at ₹16,124 crore against an outflow of ₹19,099 crore last year.

The inflows into short-term funds in the six months ended September were at ₹3,293 crore against an outflow of ₹2,811 crore in the same period.

Ramesh P, CEO, Rasi Investment Advisors said despite the geo-political developments the domestic equity markets have been holding steady other than the small occasional fall in benchmark indices.

The second half of the fiscal looks difficult with the rise in crude oil prices pushing up the production and logistics costs for most corporates amid uncertainty over sagging domestic rural demand and there are huge concerns on the export front. The current equity valuations are untenable given these developments, he added.

Vinod Nair, Head of Research at Geojit Financial Services said foreign investors continue to withdraw funds as the US Fed Chair emphasised the imperative for continued monetary tightening policy and hold interest rate high.

Investors are likely to remain cautious in the near term due to concerns about the long implication of geopolitical tensions in West Asia, he added.