Debt funds receive net inflow of Rs 61,400 crore in July, liquid funds get maximum allocation

On the other hand, categories like liquid funds registered substantial inflows, with Rs 51,938.41 crore pouring in during July, a remarkable turnaround from the Rs 28,545.45 crore outflow in June. Srivastava explained this as a common practice among corporates and institutions to invest excess short-term capital in liquid funds after the end of a quarter.

Srivastava also emphasized the cautious approach of investors in light of the prevailing interest rate scenario and uncertainty over their future direction in the country. He noted that many investors favored categories with a maturity profile of one year or less, given their lower interest rate risk.

The dynamic bond fund category, however, witnessed the lowest inflow within the debt mutual fund category, receiving a relatively modest inflow of Rs 67.38 crore. Banking and PSU funds experienced an outflow of Rs 1,309.95 crore during the same period.

Srivastava identified two distinct investor strategies in response to the shifting landscape. One group leaned towards higher risk, investing in categories like gilt funds, dynamic bond funds, medium to long-duration funds, and long-duration funds in anticipation of a potential change in the interest rate cycle. These categories are poised to benefit if the interest rate cycle reverses, although they carry higher interest rate risks. Conversely, categories that took credit bets, such as Credit Risk and Medium Duration, struggled to attract investor attention in July.

As the uncertainty surrounding interest rates continues, investors appear to be carefully navigating their choices, aiming to strike a balance between risk and potential rewards.