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The back-to-back rate hikes by RBI has not led to any change in experts' views on debt funds. Fund managers, RIAs and other pundits are still asking investors to stay away from long-term debt except for target maturity funds.
"There's no fundamental change. Markets had already priced in the rate hikes. In fact, 10-year g-sec yields cooled down a bit post the rate hike announcement," said debtguru Joydeep Sen.
"Investors should continue to avoid long-term debt funds. Shorter duration funds and target maturity funds are still a better option," he added.
Viral Bhatt of Money Mantra also has a similar recommendation. He said that investors should stay away from long duration funds due to uncertainty in debt market. "One can expect a lot of movement in yields in times to come. Until inflation comes in control, RBI will keep tinkering with the rates. Additionally, the monsoon and geo-political tensions will also have a bearing on the yields," he said.
Fund managers expect more rate hikes to come and are advising investors to invest in short and medium duration funds.
"Upward revision in CPI (by 100 bps) to 6.7% suggests more rate hikes in are in the offing. For fixed income investors continue to stay at mid end of the yield curve on risk reward basis," said Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mahindra AMC.
Sandeep Bagla, CEO of Trust MF, said investors should not invest in a debt product for long term, even if it is a target maturity fund or a roll-down strategy based fund.
"RBI is going slow on rate hikes because it is hoping for the best. Inflation is still out of control. I don't think that it would be a wise strategy for investors to get into long-term bonds. There is a very high chance that 10-year g-sec will climb to 8.5% in times to come and if that happens long-term debt investors will suffer," he said.
