Fund managers, however, say that this will not result in further redemptions in the category. They unanimously agree that any investor looking at a short-term horizon in the debt market should opt for liquid funds or floaters. They, however, maintain that if a debt market loyalist remains invested in long-term income funds over a longer term, better returns than fixed deposits of banks may accrue.
Rajiv Shastri, head-fixed income at ABN Amro Mutual Fund, said: The sharp rise in yields has had a direct impact on the NAV of long-term income funds. Annualised return over a three-day period has seen a sharp erosion. This is, however, not much of a cause for concern as liquid and floater categories remain stable. Especially, floater funds which have the ability to brave uncertainty have given stable returns.
We maintain that for anyone looking at the debt markets at a short-term must strictly restrain to liquid or floaters, he added.
Sandesh Kirkire, head of debt funds at Kotak Mahindra Mutual Fund said: The NAV of our long-term income funds have witnessed a fall of 0.6% while gilt funds have witnessed a fall of nearly one per cent. This was expected on the back of a sharp rise in yields.
This is a cyclical phenomenon. The reversal of the commodity cycle, which is expected to set in soon, will result in lower inflation and bring yields down. I believe that long-term income funds shall yield better returns over a longer term, typically in a three-four years period, Mr Kirkire explained.
Suresh Soni, head (fixed income), at Deutsche Asset Management, said: The main theme of the RBI policy review was managing inflation, by raising the repo rate by 25 basis points. This was not expected and yields rose sharply. This is, however, not much of a cause for concern as short-term debt category, where most of the inflows are, remains stable.