Debt mutual funds witnessed inflows of Rs. 50,000 crore in December 2025, the highest monthly inflow in over two years, as investors anticipated falling interest rates and sought to lock in current yields.
December Inflows Breakdown
Category-wise inflows for December 2025:
– Liquid Funds: Rs. 25,000 crore
– Ultra Short Duration: Rs. 8,500 crore
– Short Duration: Rs. 7,000 crore
– Corporate Bond: Rs. 5,500 crore
– Banking & PSU Debt: Rs. 4,000 crore
Interest Rate Context
With the RBI expected to cut rates, debt funds are attractively positioned. Bond prices move inversely to interest rates, creating potential for capital gains.
Yield Dynamics
10-year government bond yields have fallen from 7.25% to 7.05% over the past month, already benefiting existing debt fund investors.
Institutional Participation
Corporate treasuries actively deployed surplus funds in debt schemes, particularly in liquid and overnight funds, taking advantage of year-end cash surpluses.
Investor Strategy
Financial advisors recommend increasing debt fund allocation ahead of rate cut cycles. Duration funds are expected to outperform in a falling rate scenario.
Tax Advantage
Debt funds held for over three years qualify for long-term capital gains with indexation benefits, making them tax-efficient investment vehicles.
Industry Outlook
Fund managers expect continued inflows into debt funds as the rate cut cycle progresses, with corporate bond and banking funds likely to see sustained interest.
