CDs Overtake G-secs in Debt Funds Amid Tax Changes
By Market Desk
Bank CDs now lead debt mutual fund holdings, surpassing government securities due to recent tax rule changes impacting long-term investment schemes.
Bank certificates of deposit (CDs) have emerged as the largest component in debt mutual fund portfolios, overtaking traditional government securities (G-secs). This significant shift, detailed in SEBI’s annual reports, directly follows revisions to debt fund taxation rules.
Portfolio Composition Undergoes Major Rebalancing
The allocation within debt mutual funds has seen a notable reconfiguration between March 2024 and March 2026. Data shows the share of CDs in debt mutual funds climbed to 25% in March 2026, up from 15.9% in March 2024.
Conversely, G-secs saw their share decrease from 21.7% to 14% over the same two-year period. Corporate debt also registered an increase, moving from 15.2% to 17%.
Taxation Rules Reshape Investment Preferences
This reorientation in portfolio strategy is primarily a consequence of updated debt fund taxation policies. These changes have notably lessened investor enthusiasm for long-term schemes, which typically hold government securities.
In contrast, short-duration schemes have largely remained unaffected by these recent tax adjustments, maintaining their appeal to investors.
Investment Flows Reflect Shifting Sentiments
Investment flow data for the 2025-26 fiscal year further underscores the impact of these regulatory changes on investor behavior. Money market funds were the most favored debt category, attracting a substantial ₹59,478 crore during 2025-26.
Meanwhile, gilt funds, which focus on government securities, experienced outflows totaling ₹7,799 crore.
Overall, the assets under management for debt schemes demonstrated resilience, growing by 6.7% to reach ₹24.34 trillion throughout the 2025-26 fiscal year, despite the significant shifts in underlying asset preferences.