Fund managers suggest investors should continue to look at short to medium term funds given several other factors like rising oil prices, fears of impact to global trade and indirect tax collections continue to create uncertainty about the future.
Even though the Reserve Bank of India (RBI) in its first bi-monthly policy of 2018-19, kept the key rates unchanged and exhibited a dovish tone in its commentary, fund managers suggest investors should continue to look at short to medium term funds given several other factors like rising oil prices, fears of impact to global trade (on tariff wars) and indirect tax collections continue to create uncertainty about the future. R Sivakumar Head – Fixed Income at Axis Mutual Fund says, “Policy has largely remained unchanged from the last one year, but market has changed its reaction to the policy. With same policy outcome, in February’s policy markets took it hawkishly, while they have taken it dovishly now.” On Thursday, the 10-year benchmark government security (G-Sec) closed at 7.13%. “The only things that has happened after the February policy is that, markets were pricing couple of rate hikes, but that is not happening now and the market is believing that RBI is on a pause. Even we believe that, RBI will hold rates for most part of this financial year. In such scenario its better for investors to look at short to medium term funds,” added Sivakumar. He also added that the 10-year yield will continue to remain in the range of 7-7.25% in the next two-three months. The prices of fixed income securities are governed by interest rates prevailing in the markets. Interest rates and price of fixed income securities are inversely proportional. When interest rates decline, the prices of fixed income securities increase. Similarly, when there is a hike in interest rates, the prices of fixed income securities come down. Some industry players also think that, dynamic bonds funds and credit opportunities are good options to consider. “Dynamic bonds funds invest in a mix of government as well as corporate paper. These funds also change the maturity of the portfolio and the investment mix depending upon their outlook on interest rates and inflation,” said a debt fund manager with a fund house.