Massive Rs 1.6 lakh crore floods into debt MFs: Is smart money fleeing equity markets?

After two straight months of withdrawals, debt mutual funds saw a sharp turnaround in October with net inflows of Rs 1.59 lakh crore, driven largely by institutional redeployments into short-duration categories.

Debt-oriented mutual funds staged a strong recovery in October 2025, marking net inflows of Rs 1.60 lakh crore. According to an MF expert, the reversal was led by robust inflows into liquid and overnight funds as institutions redeployed surplus cash following quarter-end withdrawals in September.

An MF expert noted that investors were not exiting risk but recalibrating their portfolios in response to seasonal liquidity flows and evolving rate expectations.

October's inflow stood in stark contrast to the Rs 1.01 lakh crore outflow in September and Rs 7,979 crore in August. In October 2024, debt funds had also seen similar inflows of Rs 1.57 lakh crore.

Another MF expert said over 96 percent of October’s debt inflows went into short-end segments such as overnight, liquid, ultra-short duration, low duration, and money market funds — a trend consistent with corporate fund redeployment after quarterly tax payments.

Analysis of AMFI data shows a cumulative outflow of Rs 1.09 lakh crore over August and September this year. In comparison, the same period last year recorded outflows in just one month. September 2024 alone saw outflows of Rs 1.13 lakh crore — nearly matching the two-month total this year.

According to another MF expert, the mutual fund industry’s assets under management (AUM) surged to Rs 79.88 lakh crore in October, rising by Rs 4.26 lakh crore over the previous month. Of the Rs 2.15 lakh crore net inflow this month, nearly 68 percent went into overnight, liquid, ultra-short duration, and money market funds. Some of this, the expert added, may exit near advance tax payment dates.

Among 16 debt sub-categories, most logged inflows. Exceptions included long duration, dynamic bond, credit risk, gilt, gilt with 10-year constant maturity, and floater funds.

Liquid funds saw the largest inflow at Rs 89,375 crore, followed by overnight funds with Rs 24,050 crore. A third MF expert noted that these figures reflect easing liquidity conditions post-quarter-end and short-term treasury allocations.

Long-duration funds saw the steepest outflow at Rs 942 crore, followed by gilt and floater funds with Rs 930 crore and Rs 262 crore in outflows, respectively. According to an MF expert, gilt funds remained weak amid volatility in long-term yields and shifting global rate expectations.

The AUM for debt funds stood at Rs 19.51 lakh crore in October, up 10 percent from Rs 17.79 lakh crore in September.

Another MF expert said this rebound reflects renewed confidence in short-duration and liquid strategies as interest rate outlooks stabilize.

Meanwhile, equity fund inflows have declined since August. One MF expert attributed the trend to profit booking and caution among investors amid global policy uncertainties and trade-related concerns.