Indian mutual funds have been heavy sellers of government debt, having sold 47.23 billion rupees worth of debt in the last five days, as yields hardened after the central bank unexpectedly raised rates on Friday, adding to redemption pressure.
Funds have sold a net of 88.10 billion rupees in government bonds so far this month, clearing house data showed.
Debt mutual funds, which have over $21 billion in assets under management, have seen about 168.82 billion rupees in net outflows in the last three months alone after bond yields surged, according to industry data.
Bond funds are also increasing cash allocation in their portfolios expecting redemptions and higher yields adding to the selling, fund managers say.
"Mutual funds have been reducing (portfolio) duration over the last one month ... the selling is on a combination of the market view and redemption pressure," Mahendra Jajoo, head of fixed income at Pramerica Mutual Fund said.
Yields on the benchmark 10-year bond government bond are up 64 basis points since the Reserve Bank of India's monetary policy review.