Record Inflows into Corporate Bond Funds: A 26-Month High
Corporate bond funds saw a significant surge in inflows in May, marking the highest in over two years. This article explores the factors driving this trend and the implications for investors.
Corporate Bond FundsMutual FundsRbiMonetary PolicyDebt SchemesReal Estate NewsJun 11, 2025
Year-to-date as on May 2025, these funds registered a 14.5% jump in AUM to Rs 1.96 lakh crore, compared with Rs 1.71 lakh crore in December 2024.
As monetary easing was expected in the RBI June policy, institutional players have preferred corporate bond funds over other debt schemes. These inflows led to demand for instruments across the 2-5-year tenure, said Deepak Agrawal, head – fixed income and chief investment officer, Kotak Mutual Fund.
In the June policy, the RBI surprised the markets with a 50-bps repo rate cut and lowered the cash reserve ratio to 3% from 4%, supporting the system liquidity by an additional Rs 2.5 lakh crore.
In a situation of positive liquidity environment, the curve gets steepened and people preferred to lock in corporate bond funds, said the CIO of a domestic mutual fund.
Even though there is merit in investing in corporate bond funds with a one-year horizon (given the steep yield curve), the pace of inflows may slow down based on the RBI guidance that the space for further monetary easing is limited, reducing the scope for capital gains, Agrawal added.
Overall, the debt mutual fund category witnessed an outflow of Rs 15,908 crore in May, on the back of Rs 40,205-crore selloff in the liquid fund category.
Frequently Asked Questions
What are corporate bond funds?
Corporate bond funds are mutual funds that invest primarily in corporate bonds. These bonds are debt instruments issued by corporations to raise capital.
Why are institutional players preferring corporate bond funds?
Institutional players are preferring corporate bond funds due to the expected monetary easing by the RBI, which makes these funds more attractive compared to other debt schemes.
What was the RBI's June policy action?
In the June policy, the RBI surprised the markets with a 50-bps repo rate cut and lowered the cash reserve ratio to 3% from 4%, supporting system liquidity by an additional Rs 2.5 lakh crore.
What is the impact of a positive liquidity environment on corporate bond funds?
A positive liquidity environment steepens the yield curve, making corporate bond funds more attractive as people prefer to lock in these funds for better returns.
What is the outlook for further inflows into corporate bond funds?
The pace of inflows into corporate bond funds may slow down based on the RBI's guidance that the space for further monetary easing is limited, reducing the scope for capital gains.
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