₹3.40 lakh cr in money market funds, ₹1.55 lakh cr in low duration funds on strong inflows: Edelweiss MF

Money market and low-duration debt funds continue to attract strong investor flows, with category assets touching ₹3.40 lakh crore and ₹1.55 lakh crore, respectively, as of February 2026, supported by surplus banking system liquidity, elevated short-term yields, and steady demand for low-risk income products, according to a March 2026 update by Edelweiss Mutual Fund.

The fund house said money market funds (MMFs) have grown by about 28% and low duration funds (LDFs) by around 26% between April 2025 and February 2026, reflecting rising investor preference for short-duration debt strategies amid volatile global conditions. Net inflows in FY26 so far stand at approximately ₹88,685 crore into MMFs and ₹33,990 crore into LDFs, with February alone seeing inflows of about ₹6,267 crore and ₹2,329 crore, respectively. 

Liquidity conditions in the banking system remain supportive, which has helped keep short-term yields attractive. System liquidity stayed in surplus at roughly ₹2.7 trillion in February 2026, aided by government spending and liquidity measures by the Reserve Bank of India (RBI). While advance tax and GST-related outflows toward the end of March could temporarily tighten liquidity, overall conditions are expected to remain comfortable through the financial year. 

In the money market, certificate of deposit (CD) yields softened in February after RBI infused liquidity through variable repo rate operations. However, the spread between near-term and slightly longer-term CDs widened to about 160 basis points, one of the highest levels since 2017. Banks have largely preferred one-year issuances to fund credit growth, while corporates have continued to borrow at shorter tenors, resulting in higher supply of CDs and commercial papers. 

Yields in the NBFC and housing finance segment also eased in the one- to two-year maturity bucket, as limited supply led to spread compression in high-quality issuers. The fund house said such conditions keep short-term debt attractive for portfolio allocation, particularly for funds operating at the shorter end of the yield curve. 

Edelweiss Mutual Fund said it expects portfolio positioning in its money market and low duration schemes to gradually move toward longer-maturity assets in the final quarter of FY26, depending on liquidity conditions and demand-supply dynamics. Current allocations remain concentrated in CDs, commercial papers, treasury bills, and other short-term instruments, reflecting a cautious duration strategy in the present rate environment. 

According to the fund manager’s commentary, geopolitical tensions, global energy price volatility, and logistical disruptions have influenced bond markets in recent weeks, but RBI’s proactive liquidity support through open market operations is expected to keep the system in surplus. Strong credit demand from banks has also triggered higher CD issuances, which has supported yields at the shorter end of the curve. 

The fund house believes the current elevated yield environment offers an opportunity for investors in short-duration debt funds, as these schemes typically benefit when rates remain high but stable, while the factors pushing yields upward are expected to moderate in the coming quarters.