In the face of increasing volatility in the debt market, industry leaders have advised investors to keep a 12-18 months horizon in short-term and long-term debt funds for stable returns.
"In the short-term (income) funds, investors should have a horizon of not less than one year. Similarly, in the long-term funds, investors should stay invested for 18 months or beyond," Amit Tripathi, Fixed Income Head at Reliance Mutual Fund, said today.
He said volatility could stay for another three-four months.
To contain rupee volatility, the Reserve Bank of India (RBI), since mid- July, squeezed liquidity from the financial system through a slew of measures, which in turn, pushed up yields both in the short and long-end bonds.
While short-term rates have gone up by around 300 basis points, long-term rates have increased by around 120 basis points since RBI's announcements.
While short-term rates are hovering around 10.5 per cent, 10-year benchmark yield is at around 8.8 per cent as of now.
Another fund manager echoed similar sentiment.
"If an investor has a medium term outlook and risk appetite, then he should at least stick to 12-18 months (horizon)," Fixed Income Head at Sundaram Mutual, Dwijendra Srivastava, said.
Fixed maturity plans (FMPs), along with interval schemes, are suitable products for investors who are averse to volatility.
The yield curve would depend on the MSF (marginal standing facility) rate determined by the RBI, he said.
Chief Executive of Baroda Pioneer Mutual Fund Jaideep Bhattacharya said FMPs should be preferred products of the retail investors given the high yield prevailing in the market.
Asked about the bond yield curve, he said it is very difficult to predict a level as it would depend on RBI actions on liquidity.