Debt mutual funds see outflow of Rs 96,948 crore in May after April surge. What triggered the reversal?

Debt-oriented mutual fund categories witnessed a sharp reversal in May 2026, with net outflows of Rs 96,948 crore, following the strong inflows seen in April. The decline reflects a re-normalisation after the post fiscal year-end liquidity surge, as institutional and corporate treasuries pared back positions in short-term parking avenues, said Nehal Meshram, Senior Analyst, Morningstar Investment Research India.

“Debt-oriented schemes witnessed significant redemptions of approximately Rs 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 paper supply further weighed on the short end of the market,” said Umesh Sharma, CIO - Debt, The Wealth Company Mutual Fund.

Liquid funds saw the highest outflow of Rs 29,680 crore in May against an inflow of Rs 1.65 lakh crore in April.

Money market funds and overnight funds saw outflows of Rs 24,691 crore and Rs 15,524 crore, respectively, in May.

Credit risk funds were the only category to receive inflows in May of around Rs 49.46 crore compared to an inflow of Rs 1,317 crore in April. “Credit Risk Funds continued to see marginal inflows of Rs 49 crore, extending the nascent recovery observed in April. However, flows remain muted and selective, reflecting continued investor preference for higher-quality exposures despite improving system liquidity,” Nehal said.

Debt funds had an AUM of Rs 18.25 lakh crore in May compared to an AUM of Rs 19.14 lakh crore in April.