The sustained currency depreciation and the spurt in yields in the bond market since July 15 has played havoc with the returns of debt fund investors.
One-year returns of Gilt Medium & Long Term funds have declined to 2.44% as on August 19 from 11.27% on July 15 — a decline of 8.8 percentage points. This is sharpest decline seen across the debt category, data from mutual fund tracker Value Research show. Further, 14 out of the 40 schemes in this category have seen one-year returns slide by more than 10 percentage points over the same period. Returns of income funds have also slipped by 6.3 percentage points in this period. However, ultra short-term and liquid funds have seen only a marginal dip in their returns of 0.81 and 0.10 percentage points, respectively.
?Within the gilt and income categories, schemes that have maintained a higher duration have got hurt the most,? said Dhawal Dalal, head, fixed income, DSP BlackRock. According to experts, the monthly average maturity of some debt fund categories was still high at the end of July. Morningstar India’s Long-Term Government Bond category, for instance, maintained an average maturity of 9.5 years at the end of July. The maturity period was 10.4 years and 10.1 years at the end of June and May, respectively.
Those that invested in gilt and income schemes in the last two months have particularly suffered, reckon experts. One month returns of Gilt Medium & Long Term funds have declined to -5.86% as on August 19 compared with -0.60% as on July 15. Returns of income funds slipped 2.8 percentage points in the period.
Yields of 10-year government securities rose to a five-year high on Tuesday at 9.473%. The yield on benchmark 10-year government bonds has risen about 146 basis points to 8.925% on Tuesday from 7.463% at the end of June. One-year corporate bond yields for AAA papers have risen about 260 bps to 11.3143% from 8.728% in the same period.
Dalal advises investors to exercise caution while investing in debt schemes and wait for more clarity on the fiscal and monetary policy front. According to Dhruva Chatterji, senior investment consultant, Morningstar India, forecasting yield movements at present has become difficult.