Debt Mutual Fund AUM Shrinks 15% In March, Sees Record Net Outflows Of Rs 2.95 Lakh Crore – Here’s What Happened

The total assets under management (AUM) of debt mutual funds shrunk by 15 per cent month-on-month to Rs 16.52 lakh crore, down from Rs 19.44 lakh crore in February, as per data from the Association of Mutual Funds India (Amfi) and Crisil. The decline in the category’s AUM came on the back of record net outflows of Rs 2.95 lakh crore during the month. For context, these funds had received inflows of Rs 42,106 crore in February, and Rs 74,827 crore in January.

All the 16 sub-categories saw outflows during the month. However a major chunk of the selling was seen in liquid funds, which recorded the highest outflows of Rs 1.35 lakh crore. This was followed by overnight funds, where investors pulled out Rs 40,228 crore.

Money market funds also saw significant outflows of Rs 29,207 crore. Likewise, low-duration funds and short-duration funds witnessed withdrawals of Rs 25,227 crore and Rs 22,194 crore, respectively. Other categories such as ultra-short duration funds saw outflows of Rs 16,087 crore, while corporate bond funds and gilt funds recorded outflows of Rs 15,293 crore and Rs 3,078 crore, respectively.

What Triggered The Sell-Off

Several factors contributed to the sell-offs seen in March in debt mutual funds:

Quarter-End Pattern

March typically sees heavy redemptions as corporates and institutional investors pull money out of debt schemes to meet advance tax payments.

“This fall was owing to record net outflows of Rs 2,94,987 crore, along with the typical quarter-end pattern in which investors redeem their holdings to fulfil advance tax liabilities,” the latest monthly note by Amfi and Crisil said.

This pattern is typically seen every March and mostly affects liquid and short-term debt funds as they are commonly used for parking surplus cash.

Rise In Bond Yields

Another key reason behind the sell-off was the sudden rise in bond yields during the month. When bond yields go up, bond prices fall. This reduces returns in debt mutual funds and often leads investors to redeem their money.

The yield on the 10-year government bond crossed 7 per cent in March, reaching its highest level since May 13, 2024.

The monthly note attributed the rise in bond yields to “a combination of domestic and global headwinds.”

“The conflict in West Asia drove oil prices above $100 per barrel, triggering concerns about rising import costs and domestic inflation for India,” the note said. For a country like India, which imports most of its oil, higher crude prices tend to worsen inflation and put pressure on the bond market.

Back home, the weakening of the rupee to record lows of 95.22 further added to the pressure. Further, a large supply of government bonds in the market also weighed on prices.

“The Indian rupee hitting fresh all-time lows, coupled with massive supply of government debt and a broad sell-off in government bonds amid oil shocks, added to the supply-side pressure on bonds,” the note added.

Explaining the situation, Puneet Pal, head at fixed income at PGIM India Mutual Fund, said, “There was simply no appetite for buying bonds in the market in spite of the Reserve bank of India (RBI) conducting Open Market Operations (OMO) purchases of Rs 1.76 lakh crore during the month.”

In other words, even though the RBI tried to support the market by buying bonds worth Rs 1.76 lakh crore, investors were still not interested in buying.

He further said, “In FY26, RBI bought Rs 8.77 lakh crore worth of bonds in OMO purchases and despite such huge support bond yields have continued to trend higher since July of 2025.”

Long-Term Trend Still Positive

Even though the AUM of debt mutual funds fell sharply in March, the overall trend is still not negative. Debt fund AUM is higher by 8.6 per cent compared to last year and has grown nearly 40 per cent over the past three years.

At its April 6-8 monetary policy committee’s (MPC) meeting, the RBI decided to keep rates unchanged for now but has hinted at a possible rate hike ahead. This is likely to make investors cautious, as many tend to reduce exposure to long-duration funds and shift towards short-term options.

Going forward, factors like interest rates, inflation, and how the US-Iran war pans out in the coming months will be important in deciding how money flows into debt mutual funds.