Options for debt investors after RBI keeps rates at record highs

Multiple defaults over the past two years had raised concerns about debt funds. Some of the programs have lost money in the last six months to a year. What options do fixed income investors have after the Reserve Bank of India keeps rates at record highs even as inflation is expected to rise?

“Most of the money that is currently in mutual funds is less than three years in terms of maturity and even more less than a year,” said Sandeep Bagla, Managing Director of TRUST Asset Management , on this week’s The Mutual Fund Show. . “So investors sacrifice returns or returns in search of security and in search of predictability.”

Credit funds have not really performed well over the past three to five years and due to volatility, investors have also been hesitant to gain exposure to some of the top performing categories, he said.

After RBI policy supports lower interest rates, any three-year fund has a roll-down maturity, he said. The interest rate continues to fall over time and the program offers a high quality AAA rated portfolio, according to Bagla.

It is good to invest in such funds because instead of going for the safety net of liquid funds, an investor would achieve nearly 250-300 basis points higher returns in those funds, he said. “And if an investor held the fund for three years, he would also benefit from tax advantages.”

Vishal Doshi, partner of Alpha Investment Managers, however, advised investors to stay on the shorter end of the curve as higher inflation and rates appear imminent. He recommends low-duration bank funds and PSUs.

And if there is money in any of the schemes that suffer losses due to a corporate default, Doshi advised investors to withdraw the money. This is because the default exposure is already a separate portfolio, and when a rally occurs, as in the case of the UTI Credit Risk Fund, the investor is going to get that amount anyway, he said. declared. “So there is no loss for the investor as such by exiting now.”


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Carol M. Barragan

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