Debt mutual funds have received inflows of around Rs 31,708 crore between March 27 and March 31 as investors parked their money in these funds in a bid to avoid losing indexation benefits from April.

The inflow trend in March is also against net outflows seen into income and debt-oriented schemes in the last three years, according to AMFI data.

Category-wise data compiled by Value Research shows target-maturity debt funds have topped with a net inflow of over Rs 13,000 crore followed by corporate bonds at over Rs 9,500 crore, with dynamic bonds and gilts at over Rs 2,800 crore and Rs 2,600 crore, respectively.

Among the mutual fund houses, Aditya Birla Sun Life, ICICI Prudential, HDFC, SBI and Kotak have benefited the most. Aditya Birla Sun Life Corporate Bond Fund alone has received net flows of over Rs 3,000 crore, a note from Value Research said. The note further said that among the top 10 positions, 70 per cent of the holdings belong to corporate bonds and target-maturity funds.

Last month, the government introduced amendments to the Finance Bill 2023, whereby, capital gains arising from debt mutual funds were decided to be taxed at progressive tax slab rates of the investors for any holding period. This was made applicable to mutual funds with investments of less than 35 per cent in equity and equity-related instruments.

Earlier, gains from debt funds were adjusted for inflation and then taxed at 20 per cent if sold after three years. Indexation allowed for reducing tax burden by taking inflation into account. This indexation benefit will no longer be available for these funds.

According to market estimates, around 70 per cent of the investments in debt mutual funds is being made by institutional investors while the remaining 27 per cent includes retail investors, including high net-worth individuals.

From April onwards market analysts anticipate fresh investments expected in this category to shift towards bank deposits where interest rates were on the rise following an increase in policy rates by the Reserve Bank of India.

“Debt mutual funds worked on three principles as an investment: returns, liquidity and tax arbitrage.

“The tax benefit distinguished them from conventional debt instruments such as bank fixed deposits which could now get a boost,” Crisil said in a research note on the development.