Debt mutual funds see slower inflows than hybrid and equity

Plain-vanilla debt mutual funds have been slow to attract fresh flows for over two years now, and 2025 was no exception, even as hybrid and equity mutual funds outpaced these fixed-income schemes.

- Srushti Vaidya & Apoorva Ajith

The total assets of debt mutual funds have grown 1.3 times since November 2023 to ₹20 trillion as of November 2025, compared to hybrid and equity assets, which have grown 1.8 times over the same period.

The total assets for hybrid funds stood at ₹11.4 trillion, and those for equity stood at ₹35.4 trillion as of November, according to data from the Association of Mutual Funds in India (Amfi).

The reasons for lower inflows into debt MFs are primarily due to changes in taxation and lower awareness about the product, according to experts.

On 1 April 2023, the government removed the indexation benefit on debt mutual funds. Before the removal of indexation, if one had invested in a debt mutual fund, they would have been taxed at 20% on long-term capital gains with indexation benefits.

Currently, in debt mutual funds that invest less than 35% in equity purchased on or after 1 April 2023, the gains are taxed entirely at the applicable income tax slab rate of the unit holder, regardless of the holding period, without indexation benefits, which has disappointed investors.