The Reserve Bank of India (RBI), in its sixth bi-monthly policy, reduced the key repo rate by 25 basis points on Thursday. Fund managers expect that investors should stick to short-term income debt funds and not to embrace enter long-term debt funds yet.
Mahendra Kumar Jajoo, head – fixed income at Mirae Asset Global Investments (India), said, “RBI has taken a pragmatic approach and there is clarity in the communication which will help the markets. If things pans out in right way, I think we might see two more rate cuts in the next financial year.” Investors should continue to look at short-term income funds in the current scenario and expects 10-year yields hovering around 7.15 percent -7.20 percent in the next few months, he added.
On Thursday, 10-year benchmark G-Sec closed at 7.5 percent. There are a number of short-term debt funds such as liquid funds, ultra-short duration funds, money market funds and short duration funds. While short duration funds invest in debt and money market instruments where duration of portfolio is between one and three years. On the other hand, liquid funds, ultra-short duration funds and money market funds have instruments maturity of between 91 days and one year.
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R Sivakumar, head of fixed income at Axis MF, said, “We do not expect long bonds to offer significant investment opportunities given the uncertainty around crude prices, the OMO calendar for the remainder of the year and possible front-loading of debt issuances in the next financial year.”
In the past one year, liquid funds category and ultra-short term fund category have given returns of 6.95 percent and 6.09 percent, respectively, show the data from Value Research. Short duration and medium duration funds have given returns of 6.25 percent and 5.55 percent in the last one year.