Debt-oriented schemes witnessed significant redemptions of approximately ₹97,000 crore in May, led by outflows from the shorter end of the curve, particularly liquid, overnight, and money market funds. The withdrawals were driven by tighter liquidity conditions, which pushed short-term yields higher. Elevated Bank CDs and securities papers supply further weighed on the short end of the market. Additionally, sustained energy price levels and concerns over El Niño’s impact dampened sentiment, with investors anticipating tighter monetary conditions ahead of the Reserve Bank of India’s policy meeting in early June.
Equity-oriented schemes saw a moderation in flows during May, with net inflows easing to around ₹22,000 crore compared to over ₹35,000 crore in each of the preceding three months. Despite this slowdown, investor preference remained firmly tilted towards the broader market, as mid-cap, small-cap, and flexi-cap funds attracted the highest inflows, while large-cap funds witnessed relatively subdued participation.
Hybrid schemes also reflected a moderation in activity, recording inflows of nearly ₹10,000 crore, though arbitrage and multi-asset allocation funds continued to be the most favored categories, underscoring demand for diversified and lower-volatility strategies.
In contrast, inflows into other categories such as index funds, ETFs, and gold funds were muted, suggesting a more cautious stance towards passive and commodity-linked exposures during the month.
May trends reflected tighter liquidity conditions and heightened macroeconomic risks, leading investors to scale back incremental allocations across asset classes. Outflows from short-term debt categories, alongside moderated equity and hybrid inflows, underscored a cautious stance as rising yields, currency pressures, and persistent energy costs weighed on sentiment ahead of the RBI’s policy review.
