High valuation of equity markets has shifted interest of many investors towards debt funds. To guide such investors, Rahul Singh, Senior Fund Manager - Fixed income, LIC MF shared with us a guide to simplify debt investing at Cafemutual Confluence Investment Marathon 2021.
Rahul gave a clearer understanding of what can investors expect and how they can position their investments wisely. Here are the three key insights from the session.
Here are the factors that debt investors should consider:
- Level of liquidity in the market - With the drop in covid-19 cases, increase in vaccinations and restoration of normalcy, RBI is expected to reduce the level of liquidity. When liquidity in the system reduces, yields i.e. the interest rate at which securities are available in the market will start inching upwards.
- Rate of inflation - Post the nationwide lockdown, as more and more activities are opening in the economy, inflation is expected to go up. As inflation goes up, RBI is expected to take measures to curtail it and when that happens yields will go up.
- Government borrowings - RBI borrows on behalf of the government from the market, where corporations, banks, mutual funds and primary dealers are the key investors. When borrowings increase, the end-investors expect a high level of interest and when that happens, the overall yields in the market will start going up.
- Global scenario - Global happenings, especially in the US have an impact on the domestic market. Post the impact of the pandemic, the US is on the growth path as indicated by the number of vaccinations administered and increase in employment. If this continues, a rise in the US yield is expected, which will have an impact on the domestic economy.
Will these factors change rapidly?
RBI is expected to implement new measures slowly and gradually, as any drastic change will hurt economic growth. On the global front, the US does not anticipate any rate hike before 2023 and before that, they would take a call on tapering of quantitative easing.
Such gradual implementation will give investors ample time to manage their investments and take stock of their situation.
Which debt funds should investors consider?
For the next one year at least, the lower end duration products like ultra-short funds and lower duration funds will be in flavour.
For more details, you can visit the link given below to watch Rahul’s session.
