Credit risk as an investment theme will not be prudent in the near term until and unless the economy goes back to a strong growth path, said Amandeep Chopra, Group President and Head-Fixed Income, UTI MF.
At Cafemutual Confluence 2020 Investment Marathon, Amandeep said that India has gone through a very deep credit cycle. And the credit cycle that began in September 2018 post IL&FS is unlikely to end very soon because of the pandemic’s adverse impact on the broader economy.
Pointing out another trend that has emerged in the debt market, Amandeep said that the RBI has resorted to aggressive monetary policy easing with several interest rate cuts. This has been beneficial from a return perspective in short duration funds, banking and PSU bond funds and even the long duration funds such as gilts funds and dynamic bond funds in the last one year. However, since most of the interest rate cuts have translated into market gains, investors should not expect similar returns in the near future.
Amandeep felt these two trends - credit risk being too risky and very little scope of further rate cuts from current levels - will prompt fund managers to look for high investment grade exposures. This means the debt fund portfolios are going to become a lot more conservative and fund managers will also be keen on maintaining sufficient levels of liquidity in the scheme.
From an investor’s perspective, the UTI MF Fixed Income Head feels that looking at the YTM of a fund will not be enough to assess the health of a debt fund. Therefore, investors should look at various risk-return parameters of debt funds such as Macaulay duration, modified duration, average maturity and most importantly avoid debt scheme with too much concentration in a few instruments.
Amandeep suggested that inventors having less than 1 year horizon should look at money market funds and low duration funds. If the investment horizon is 1-3 years then investors should look at corporate bond funds and banking and PSU bond funds. And if the investment horizon is of more than 3- years, SIP in gilts fund category or dynamic bond fund category will be suitable.
Click here to watch Amandeep’s session at Cafemutual Confluence 2020 Investment Marathon
