‘Diversify portfolio with mix of short- & medium-term bond funds’

By: | Published: June 3, 2015 12:10 AM

Fund managers believe that another rate cut would be data-driven and come only in the last quarter of the current fiscal, which could help investors in income and gilt funds

The RBI’s hawkish tone notwithstanding, fund managers are of the opinion that investors with a time-horizon of 18-24 months should continue to go in for long-term bond funds and income funds.

However, those with a short-term view might want to consider medium-term funds, they say.

The current calendar year has seen repo rate brought down by 75 bps to 7.25%.

“Though we don’t expect any further cut till December, it is advisable for investors to look at short-tenure debt funds. Investors who wants to get into long-term debt products should know that such funds are directly aligned with benchmark interest rates and might see significant volatility given the duration of the products,” said a debt fund manager.

Prices of fixed-income securities are governed by prevailing interest rates in the market and the two are inversely proportional.

Rahul Goswami, CIO-fixed income, ICICI Prudential Asset Management Company, said: “With repo rate at 7.25% and possibility of further rate cuts, the 10-year bond yields at 7.85% remain reasonably attractive. Long-term duration funds seem better placed in a downward rate cycle. But for those looking to diversify, a debt portfolio with short- and medium-term bond funds can be a good combination as well. This is a suitable time to invest in such products with an aim to benefit from the falling interest rates and also limit re-investment risk.”

On Tuesday, the new 10-year benchmark G-Sec yields rose by 8 bps to 7.72%. The 8.40% government bond yield due 2024 rose 11 bps to close at 7.93% .

Dwijendra Srivastava, CIO-Debt at Sundaram Mutual Fund, said: “Given the current scenario, we expect another rate cut of 25 bps by the end of the current financial year. There is a strong probability that yields might go below 7.5% by the end of 2015-16.”

RBI, at its bi-monthly monetary policy, said there were three key risks — probability of below-normal southwest monsoon, firming crude prices and volatile external environment.

Given such a scenario, fund managers believe that another rate cut would be data-driven and come only in the last quarter of the current fiscal, which could help investors in income and gilt funds.

For Updates Check Banking News; follow us on Facebook and Twitter

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition