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Debt funds made headlines during the last week of March with the removal of LTCG taxation. While this is a big blow to the industry, a few media reports suggest that many investors invested in debt funds just before April 1, 2023 to get indexation benefits.
Overall, debt market remained volatile in March due to concerns around inflation and growth numbers. We spoke to a few fund managers to understand what April holds for debt funds. Here is what they say:
Alok Singh, CIO, BOI MFOutlook
- In the first week of April, RBI may hike rates by 25 bps to control inflation
- There may not be any rate hike post this policy review. However, RBI may continue to keep rates elevated to check inflation
- The 10-year benchmark G-sec yield is expected to trade in a range of 7.25% to 7.45% in April 2023
Fund recommendation
Investors may look at short term funds like money market funds, low duration funds, ultra-low duration funds or short duration funds to ride out the current volatility
Dhawal Dalal, CIO-Fixed Income, Edelweiss MFOutlook
- Government bond yields declined in March between 2 and 25 bps across maturities due to collapse in two global banks
- Due to removal of LTCG benefits from debt funds, investment horizon of investors will turn shorter in debt schemes as compared to earlier
- The benchmark 10Y g sec to trade in a range of 7.25% to 7.5% in the medium-term assuming policy rates stabilize between 6.5% to 6.75%
Fund recommendation
Since policy rates are closer to their peak level, we recommend hold-to-maturity investors to consider target maturity funds in the maturity bucket between 5 to 15 year depending on their investment horizon and risk appetite
Prashant Pimple, CIO - Fixed Income, Baroda BNP Paribas MF Outlook
- After March 2023 hike, FED may not hike rate further
- Central banks including RBI now look at key data points for policy making
- Inflation is expected to be eased in the coming months and hence, RBI may not increase rates
- 10-year benchmark to remain in the range of 7.25-7.50%
Fund recommendation
Investors may look at medium to long duration funds to benefit from the rate fall cycle
Puneet Pal, Head - Fixed Income, PGIM India MFOutlook
- Global bond yields, especially US, fell sharply as investors started pricing in not only the end of the rate hiking cycle but also sharp rate cuts over the next 6 to 9 months
- Indian bond yields came down across the curve on back of the rally in global bond yields
- We expect the 3 to 5yr segment of the curve to outperform given our expectation that the rate cycle in India will peak out in April
- Overall, we expect a peak in rate hike cycle in April
Fund recommendation
Investors can consider short duration funds with a portfolio duration of 3 to 5yrs and higher allocation to government securities. The long end of the curve can underperform due to adverse demand/supply dynamics as the government’s borrowing is large
