Mutual Fund: Investors withdrew 32722 crores from debt mutual funds in May, the effect of increase in interest rate is

Mutual Fund: In the month of May, investors have withdrawn Rs 32,722 crore from fixed income mutual fund products. The withdrawal has increased after the Reserve Bank of India (RBI) announced a hike in the key policy rate repo rate and gradual withdrawal of the accommodative stance to control rising inflation. According to the data of Association of Mutual Funds in India (AMFI), earlier in the month of April it had an investment of Rs 54,656 crore.

Apart from this, the number of ‘folios’ also came down from 73.43 lakh to 72.87 between April and May this year. Fixed-income products like bonds are considered a safe option for investment during market volatility. However, a hike in interest rates, volatility in the macro environment and higher yields may affect the outlook for investors to invest in the bond market.

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What is the opinion of experts

• Kavita Krishnan, Senior Analyst (Research Manager), Morning Star India, said the increase in the policy rate was due to factors such as the Russo-Ukraine war, along with a rise in food, commodity and fuel prices. The focus of the Reserve Bank is now on bringing inflation under control. Due to this there is a possibility of further increase in the policy rate. “In view of the prevailing situation, capital outflow from bonds and other similar products is continuing, except for funds like ‘overnight’ and ‘liquid funds’ (short term investment products). Single digit returns and rising interest in other sectors such as equities have also affected capital inflows into bond funds.
• Alok Agarwal, Chief Research Officer, Bajaj Capital also said that the reason for the capital exit is the RBI’s change in its stance in the monetary policy review last month. In the meeting held without a schedule, the RBI not only increased the repo rate by 0.40 percent but also increased the Cash Reserve Ratio (CRR) by 0.5 percent to 4.5 percent.
• He said, “In the meeting held on May 4, the RBI had also stressed on withdrawing the accommodative stance to bring inflation under control. This has affected the investors preferring fixed income. ”According to the data, 12 out of 16 fixed income products saw capital outflows in May. Capital inflow took place only in ‘Overnight Fund, Liquid Fund’ and ‘Gilt Fund’.

(Input-PTI)