What is your outlook for fixed income funds for the next two years? What kind of returns should MF investors expect from debt funds?
India's macro fundamentals continue to be very strong with improving fiscal and current account deficit and muted inflationary expectations notwithstanding the recent rise in commodity prices. As such in the medium term, expectation from fixed income funds remain optimistic though in the short term, there are headwinds emanating from a possible rise in global interest rates especially from federal reserve in US. So the near term stance is cautious with a positive medium term outlook.
What is the rationale behind launching dynamic bond funds? Why investors should look at these funds?
Fixed income markets remain volatile with frequent change in direction of economic indicators as evidenced by recent volatility in rates. As such, a strategy of realigning portfolios to evolving economic environment is more effective than that of trying to make long-term prediction. In such a situation, a dynamic bond fund with a flexible portfolio strategy is a proper fit.
Where do you see the direction of yield curve in the near to mid-term? What will be the key driving force for yields?
In the near term, there is an upward pressure on interest rates emanating from global headwinds though given strong fundamentals of Indian economy rates are like to remain soft in medium to long term.
At this juncture, what are the key risks for the debt market?
Rising commodity prices and a hawkish fed are the key risks presently.
With RBI stance getting neutral, how are you going about restructuring fixed income portfolio?
A neutral stance from RBI warrants a cautious stance on portfolio. Durations should currently be reduced.
The recent incidents of credit rating downgrades (Amtek auto and BILT) reflect that MF industry is reactive rather than proactive in managing risks. What need to be done to mitigate credit risks in debt funds?
Low rates credits are always subject to negative surprises and hence it is always better to invest in a high quality portfolio rather than chasing marginally higher returns in low credits.
RBI has allowed PSU banks to meet their interest payments under perpetual bonds through statutory or other reserves. Are you looking forward to adding these bonds in your portfolio?
No. These bonds are relatively illiquid and don't fit in our portfolio strategy
Now, which category of debt funds should adviser recommend to their clients?
It is up to the advisors to conduct their own due diligence and recommend after analysis by the respective risk profile of their investor.