Debt-oriented mutual funds have been under pressure since the Finance Act, 2023, removed long term capital gains and indexation benefit, thereby reducing the tax attractiveness
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Mutual-fund flows into income or debt-oriented schemes fell sharply in the four months to July 2026, while growth-oriented equity schemes managed a modest increase. Net inflows into debt-oriented schemes declined 28 per cent to \u20b92.20-lakh crore from \u20b93.06-lakh crore in the corresponding period last year.<\/p>\n
Hybrid schemes also saw their inflows fall nearly 30 per cent y-o-y to \u20b955,509 crore. As a result, total net inflows into mutual-fund schemes fell 17.3 per cent y-o-y to \u20b94.41-lakh crore in the first four months of FY27.<\/p>\n
The slowdown in debt-oriented schemes was concentrated in several major categories. Money market funds, which had attracted \u20b996,788 crore in net inflows in April-July 2025, received only \u20b96,536 crore in the corresponding period this year. Low-duration funds swung from a \u20b925,407 crore inflow to a \u20b917,803 crore outflow, while corporate bond funds moved from a \u20b923,988 crore inflow to a \u20b99,155 crore outflow during the period. Short-duration funds, similarly, shifted from an \u20b918,659 crore inflow to a \u20b95,017 crore outflow.<\/p>\n
\u201cDebt or income schemes benefitted substantially from investors parking money in money-market, liquid, and short-duration products, particularly when yields were attractive,\u201d said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. \u201cAs the interest-rate cycle has moved lower, the incremental return available from many traditional debt funds has become less compelling.\u201d<\/p>\n
Debt-oriented mutual funds have been under pressure since the Finance Act, 2023, removed long term capital gains and indexation benefit, thereby reducing the tax attractiveness for investors, particularly those in the higher tax brackets.<\/p>\n
\u201cThere has been a migration to equity schemes due to better returns and tax benefits,\u201d said Madan Sabnavis, Chief Economist at Bank of Baroda.<\/p>\n
On the other hand, Nishchay Nath of fixed-income investment platform BondScanner, does not see the numbers as a shift from debt to equity. \u201cA large part of the money in debt-fund flows is tactical and institutional in nature. July\u2019s sharp reversal in debt flows itself shows that this is not a structural shift from fixed income,\u201d he said.<\/p>\n
The moderation was also visible in the growth of net assets under management (AUM). Growth in debt-oriented schemes slowed to 0.9 per cent in the first four months of FY27 from 8.6 per cent in the same period last year. Equity-oriented schemes also slowed to 8.7 per cent from 12.8 per cent growth, while hybrid schemes fell to 6 per cent from 11.4 per cent during the period.<\/p>\n
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