New Delhi, Sept. 10 -- Even after a month of strong inflows, debt mutual funds witnessed outflows in August, triggered by concerns over a potential goods and services tax (GST) cut announced on Independence Day. As a result of the expected GST cut, investors were on the sidelines during the month, as lower tax revenue for the government could increase government borrowing in the second half of the year and push bond yields higher.

According to the Association of Mutual Funds of India (Amfi) data, debt mutual funds (MFs) recorded outflows of Rs.7,879 crore in August, compared to inflows of Rs.1.06 trillion in July. Debt MF schemes had seen inflows of Rs.45,169.3 crore in August last year.

When the government issues more bonds, it leads t...