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India's Mutual Funds Pivot to Ultra-Short Bonds Amid Rate Uncertainty
13 Nov
Summary
- Mutual funds see inflows of 1.3 trillion rupees into short-term funds
- Investors wary of longer-term bonds due to uncertain interest rate outlook
- Global trade concerns also curb appetite for long-tenor securities
As of November 13th, 2025, India's mutual fund industry is adapting its investment strategies to the prevailing market conditions. Faced with an uncertain interest rate outlook and global trade concerns, fund managers are increasingly favoring ultra-short-term bonds over longer-tenor securities.
The Reserve Bank of India's upcoming monetary policy decision on December 5th, 2025, is a key factor driving this shift. Despite inflation falling to a record low, swap markets are not pricing in a rate cut, leading investors to take a more cautious stance. "Due to RBI's shift in stance, investors may have taken a view to shift to shorter duration funds in these uncertain times," explained Avnish Jain, CIO - fixed income at Canara Robeco Mutual Fund.
Moreover, the lingering global uncertainties linked to US tariffs have added to investor worries, further dampening the appetite for longer-term bonds. In October 2025, mutual funds saw significant inflows of 1.3 trillion rupees ($14.8 billion) into liquid, ultra-short duration, low duration, and money market categories, the highest since April.
"While longer end of the yield curve is influenced by a broader set of macroeconomic factors, the shorter end tends to respond more swiftly to changes in monetary policy. This has led to increased investor interest in the money market segment," said Kruti Chheta, fund manager and fixed income analyst at Mirae Asset Investment Managers (India).
