Bank certificates of deposit have surpassed government securities as the largest component in Indian debt mutual fund portfolios, driven by recent tax reforms that have reshaped investor preferences and fund management strategies.
Bank certificates of deposit have overtaken government securities as the biggest holding in Indian debt mutual fund portfolios, underscoring how tax changes have reshaped investor demand and fund managers’ allocation choices. According to data cited by Business Standard from the Securities and Exchange Board of India’s annual reports, CDs accounted for 25% of debt fund portfolios in March 2026, up from 15.9% in March 2024, while the share of G-secs fell to 14% from 21.7% over the same period.
The shift has been most visible in categories that appeal to shorter-term investors. Business Standard reported that changes in debt fund taxation have reduced interest in longer-duration schemes, which traditionally hold more government paper, while shorter-horizon funds have been less affected. That rebalancing has coincided with a clear flow preference: money market funds drew ₹59,478 crore in 2025-26, the highest inflow among debt categories, whereas gilt funds saw outflows of ₹7,799 crore.
The portfolio mix also suggests that fund managers have broadened their exposure beyond sovereign securities. Cafemutual, citing Sebi data, said government securities still remain the single largest allocation in debt funds when measured by value, at ₹4.13 lakh crore, or about 20% of debt-securities allocations. Bank CDs accounted for 17%, or ₹3.46 lakh crore, while commercial papers made up 15%, or ₹3.20 lakh crore, reflecting a wider tilt towards money market instruments and private-sector debt.
The pattern marks a sharp contrast with earlier periods when debt funds had been heavy buyers of government paper. Business Standard noted that mutual fund exposure to G-secs reached a record in February 2015, when fund managers were positioning for a possible shift in monetary policy. The latest data suggest that, nearly a decade later, taxation rather than rates is doing more to steer flows across India’s debt fund universe.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
