Investors Rotate to Higher-Yield, Low-Volatility Debt Funds Amid Outflows from Overnight and Liquid Funds

 By:-  Mr. Umesh Sharma, CIO Debt, The Wealth Company Mutual fund

“Internals show some rotation away from the very short end toward slightly longer carry-oriented categories. The headline outflow is driven almost entirely by Overnight (–₹37,130 crore) and Liquid Funds (–₹11,293 crore). In contrast, investors allocated meaningfully to higher-yielding but low-volatility segments such as Money Market (+₹12,822 crore), Ultra Short Duration (+₹9,068 crore) and Low Duration Funds (+₹5,800 crore). These categories offer stable carry without material duration risk, making them attractive amid uncertainty over the rate path. In addition, this could also mean some rotation and positioning ahead of the MPC policy review in early December.

Short Duration and Corporate Bond Funds also saw moderate inflows, consistent with a preference for high-quality accrual.

Long-duration, gilt and dynamic bond categories recorded outflows, signalling limited investor appetite for duration bets. Overall, flows indicate a rebalancing rather than fresh deployment: liquidity-sensitive buckets faced redemptions, while investors selectively moved to segments offering better carry and predictable risk”