Hello Readers!!
We are in the second wave of the COVID-19 pandemic and are continuously fighting against it by following COVID guidelines and getting vaccinated! The matter that is in highlight today is the effect of COVID-19 second wave on the debt market.
Yes, as per the reports of Morningstar, in the last quarter that is from January to March 2021, Debt Mutual Funds witnessed an outflow of Rs 84,202 crore. As per the experts, this is the only big outflow in debt mutual funds witnessed in the financial year 2020-21, that came after big inflow quarters. In the December quarter, Debt mutual funds witnessed an inflow of Rs 1.69 lakh crore, in the September quarter this inflow was Rs 35,522 crore, while in the June quarter it was Rs 1.09 lakh crore.
What’s The Story Behind The Big Outflow!!
Well, there’s no doubt the reason behind the big outflow is the second wave of COVID-19 and its predicted impacts on the market in the coming days. Regarding the increased certainty in the economy because of COVID-19, and what investors suffered last year due to Franklin Fiasco, has forced them to move towards more secure fixed income instruments. They are directed toward moving to fixed-income instruments that provide better protection to their capital relative to some credit strategies. And probably this is the prominent reason behind the big outflow witnessed in the March quarter.
The latest outflow pulled the asset base of the fixed-income category for the March 2021 quarter to Rs 13.28 lakh crore, which was 6 percent lower than the previous quarter when the total asset base was Rs 14.06 lakh crore.
Debt Categories That Witnessed Outflow!!
As per the reports, many of the debt categories like liquid, ultra-short-term, money market, and overnight fund, witnessed outflow in the March 2021 quarter. Most of the outflow that is around 56 percent of the total outflow during the quarter in the fixed-income segment came through liquid funds. The report said that liquid funds witnessed a total outflow of Rs 47,398 crore during the quarter under review following a total inflow of Rs 16,270 crore for the same quarter.
Experts say, debt categories like liquid, ultra-short-term, money market, and overnight fund, contribute to a substantial of the fixed income assets that are about 44 percent. Thus, a slight change in the number of flows of these funds can clearly be noticed in the overall flows within the fixed-income category.
Debt categories like low-duration funds and short duration funds saw an outflow of Rs 21,044 crore and Rs 12,419 crore respectively. The safest considered debt categories, banking & PSU category, do witness a total outflow of Rs 6,427 crore in eth March 2021 quarter.
Other debt categories like credit risk or medium duration funds that are rated as AAA instruments and have all-time significant inflow rates, also witnessed outflows, while categories like corporate bonds, banking, public-sector undertakings debt, and gilt funds opposite to everyone expectation, registered inflows in the fund.
Equity Categories Also Witnessed Outflow!!
Not only debt mutual funds, but different categories of equity mutual funds also witnessed an outflow but comparatively, it was less than the debt mutual funds. As per the report of Morningstar, open-end equity mutual funds witnessed a net outflow of Rs 4,672 crore during the quarter under review.
While other categories of equity funds that have sub-categories like exchange-traded funds or ETFs, index funds, and funds of funds overseas, gained good popularity recently and as a result registered a net inflow of Rs 20,063 crore during the quarter under review.
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(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).