Invest in short duration debt funds: RBI

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Mumbai | Published: August 8, 2019 2:08:55 AM

While other category such as short-duration and medium-duration funds have given returns of 5.49% and 5.21% in the last one year.

Fund raising, rate cut, rbi rate cut, rbi credit flow, NBFCs, NCD market, stock market, share market, bses, sensex, RBI monetary policy, Rate cut, policy repo rate, Global growth, BCBS, inflation, global economic indicators, India banking sectorShort-duration funds invests in debt and money market instruments where duration of portfolio is between 1-3 years.

The RBI in its third bi-monthly monetary policy for 2019-20, reduced the key repo rates by 35 basis points on Wednesday. Fund managers believe that investors should look at investing in short-duration debt funds as good quality short-tenor papers are yielding close to 6.5-7%. However, if investors are willing to take some volatility they should also start investing in long duration funds, add fund managers.

Dwijendra Srivastava, CIO-Debt at Sundaram Asset Management Company says, “With yields of one year T-bills is anywhere around 5.75%-5.85%, but one year yield on good quality AAA rated papers is around 6.70-7%, so its better to put money in short duration funds who have horizon of 12 months.” He added future rates cuts will be data dependent and if inflation remains under 4%, there are chances another rate cut of 25 basis points by end of this financial year.

Short-duration funds invests in debt and money market instruments where duration of portfolio is between 1-3 years. On the other hand, liquid funds, ultra short-duration funds and money market funds have instruments maturity between 91 days to one year. In the past one year, liquid funds category and ultra short-term fund category have given returns of 6.85% and 6.14% respectively, shows the data from Value Research. While other category such as short-duration and medium-duration funds have given returns of 5.49% and 5.21% in the last one year. However, category of long-duration funds have given returns of 19.79% in last one year, while gilt funds category have registered returns of 15.13%.

Mahendra Kumar Jajoo, head of fixed income at Mirae Asset Global Investments (India), says, “Its a very accommodative and dovish policy with indication of more rates cuts. I think we might see another 50 basis point cuts by the end of this financial year. Given this situation, investors should look at short term debt funds. For investors who are willing take some risks and has long term horizon should long term bond funds.”

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