Debt mutual funds see slower inflows than hybrid and equity

₹20 trillion as of November 2025, compared to hybrid and equity assets, which have grown 1.8 times over the same period.The total assets for hybrid funds stood at ₹11.4 trillion, and those for equity stood at ₹35.4 trillion as of November, according to data from the Association of Mutual Funds in India (Amfi).The reasons for lower inflows into debt mutual funds are primarily due to changes in taxation and lower awareness about the product, according to experts.On 1 April 2023, the government removed the indexation benefit on debt mutual funds. Before the removal of indexation, if one had invested in a debt mutual fund, they would have been taxed at 20% on long-term capital gains with indexation benefits.Currently, in debt mutual funds that invest less than 35% in equity purchased on or after 1 April 2023, the gains are taxed entirely at the applicable income tax slab rate of the unit holder, regardless of the holding period, without indexation benefits, which has disappointed investors.Sirshendu Basu, head of product management & strategy at Bandhan AMC, said that since debt mutual funds are taxed at the investor’s applicable marginal rate, post-tax returns have declined for most investors.“With AAA-equivalent debt funds offering around 6.75% pre-tax returns, investors are increasingly exploring hybrid fund categories in search of improved post-tax outcomes, while being mindful of the relatively higher risk involved,” he added.“Taxation changes impacted institutional investors because money invested before the change continues to enjoy indexation benefits through grandfathering,” said Basant Bafna, head of fixed income at Mirae Asset Investment Managers (India).