CAUTIOUS MONEY

FOCUS ON GSECS AND QUALITY OF CORPORATE BOND PORTFOLIO MAKE DEBT FUNDS A STEADY ANCHOR FOR DIVERSIFIED INVESTMENT STRATEGIES.

- BY PRINCE TYAGI

FOR YEARS, EQUITY funds have captured all the limelight on account of a boom in equity markets.

But behind the scenes, India's debt mutual funds have built a strong foundation for investors seeking stability, liquidity, and steady income. Experts say debt funds are entering a promising new phase.

India's debt mutual fund industry has grown consistently over the last decade and a half. The total assets under management (AUM) of all debt funds have jumped sixfold from ₹3.68 lakh crore in FY11 to ₹22.38 lakh crore in FY25.

The journey wasn't smooth. The growth was slow in the early years but picked up after FY16 as institutional participation increased and liquidity in fixed-income markets improved. After a mild dip in FY23, the AUM rebounded in FY24 and FY25, showing renewed investor confidence amid volatile interest rates and stable yields.

"Debt funds are finding their place in investor portfolios again," says Murthy Nagarajan, Head of Fixed Income at Tata Asset Management. “Investors who traditionally preferred bank deposits are realising that debt funds offer flexibility in withdrawals and portfolio stability."

NEW PORTFOLIO TRENDS

The way debt funds deploy money has also changed notably. Between FY20 and FY25, the total AUM of debt funds rose 70% from ₹13.1 lakh crore to ₹22.4 lakh crore. But what's more interesting is where this money is going.

Government securities (G-Secs) have seen the biggest jump in AUMs with a 282% surge from ₹1.1 lakh crore to ₹4.3 lakh crore. Money market instruments such as treasury bills and commercial papers are up 105%, highlighting a move toward short-term and liquid instruments. Corporate debt AUM, on the other hand, fell 17%. However, PSU bonds and securitised debt grew steadily, by 45% and 76%, respectively.