Skip to main content

Long Term Debt Funds

 For once, the bond market is mimicking the equity market and wit nessing a rally of its own. The yield on the 10-year benchmark government bonds have softened substantially. Declining yields mean bond prices are inching upwards, since bond prices and yields move in opposite directions. Where does that leave investors in bond funds?

For over a year, debt fund investors held on to long duration funds in anticipation of the interest rates softening. When interest rates fall, bond prices move up, and longer maturity instruments benefit the most from this movement. Long duration funds such as gilt funds and income funds being among them. Despite a cut of over 150 bps in interest rates since early last year, long-term bond yields did not budge much until recently, leaving investors in long duration funds with a bad taste in the mouth.
 

Unsurprisingly, gilt funds have seen heavy outflows since December last year. These investors would be ruing their decision to sell with benchmark bond yields dropping from 7.76% in December to 7.29% now. Gilt funds have benefited from this rally and delivered a healthy 10.35% over the past one year. Short-term and ultra short-term funds, on the other hand, have yielded 8.6% and 8.4% respectively. How should investors position their portfolios as this rally plays out?


Most fund managers admit that the rally could last for some more time, but advise caution against taking any aggressive positions in long-term funds. The bond market appears overenthusiastic about its near term outlook, Inflation is on the higher side, which could prevent the RBI from cutting interest rates anytime soon

 

One of the main reasons cited for the bond market's enthusiasm is speculation that the soon-to-be appointed RBI Governor is likely to be more inclined towards carrying out rate cuts. Current Governor Raghuram Rajan's term ends in September, when his replacement will take over. But not everyone is so enthused. According to R. Sivakumar, Head of Fixed Income at Axis Mutual Fund, while the new RBI Governor is expected to be inclined towards softer interest rates, he doesn't see the central bank cutting interest rates aggressively, irrespective of the governor's preference.

 

Given the current scenario, experts are advising investors to stay focused on shortterm bond funds. Sivakumar points out that as the end of the rate cut cycle draws closer, the window to benefit from a reducing interest rate environment is getting progressively narrower. "Even though we may see one or two more rate cuts, we expect short-term bonds to outperform in the coming months," he adds. According to Jain, yields on the 10 year government bond are likely to touch 7%-7.15% before we witness a rebound, and while a bid on long term bonds may pay off over the next 6-12 month period, shortand medium-term bonds appear to be more attractive on a risk-adjusted basis.

 

Jain adds that he may look to trim duration of his own funds going forward, depending on how the new RBI governor plays his cards. In bond terminology, duration is a measure of the sensitivity of a bond portfolio to changes in interest rates.When fund managers extend or reduce portfolio duration, they essentially buy or sell longer maturity instruments within the portfolio.

 

According to experts, investors should assign more weight to accrual funds in their debt portfolios at this juncture. This includes short term and ultra-short term bond funds.

 

Unlike duration funds, accrual funds or credit funds derive a significant chunk of their returns from the interest income yielded by the underlying bonds. Since these funds do not play on interest rate movements, they don't have as much exposure to risks related to interest rates as duration funds do.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Group Health Insurance

Buy Group Health Insurance Online   For Human Resources, the biggest challenge today is to decide whether medical benefits should be offered to employees or not, what type of plans should be offered, what will be the cost and how will the cost be split between employees and employer. Well, most of these are subjective and would depend on a lot of factors including company size, average employee salary, etc. However, this article will give you a fair idea on how you should go about deciding these factors: 1. Why offer group health insurance benefit to employees : Studies have proved that retention rates among employers offering GHI are much higher than the ones who are not offering. Moreover, the cost of providing this benefit as a percentage of salary is very low as compared to the perceived value. As an example, say if average salary of an employee in your organization is 4 LPA. If you decide to offer a health insurance benefit to him for a Sum insured of ...
Read more

Birla Sun Life MIP II Savings 5

  Birla Sun Life MIP II Savings 5 - Invest Online   Have you traditionally been a debt investor but now wish to test waters in equities? Then, debt-oriented funds such as Birla Sun Life MIP II Savings 5 (Birla Savings 5), which have limited exposure to equities, may fit your requirement. With a five year return of 10.5 per cent compounded annually, the fund managed a good 3-3.5 percentage points more than its benchmark Crisil MIP Blended Index, as well as its category average. The fund appears well poised to capitalise on a falling interest rate scenario and has increased the average portfolio duration of its debt instruments in recent times. Suitability Birla Savings 5 is suitable only for conservative investors. If you want to make a beginning in equities and cannot take any short-term declines in your stride, then this fund will suit you. If you are already an equity investor and want to use a debt-oriented fund merely as a diversifier, then you may prefer peers from the HDFC and Re...
Read more

ICICI Prudential Dynamic Plan Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...
Read more

Why credit history is critical?

Will you need a loan to buy a car or a house? Do you know why some people get their loans sanctioned quickly without any hassle, whereas others find that their approval is delayed or their application is rejected? If you want a loan, you will need to work to build a solid credit history because this can have a bearing on the ease with which you get loans. Read on to learn more about what is a credit history and how to build a good credit score. What is a credit history? Your credit history is a way of tracking your credit behaviour and habits — basically it shows how disciplined and regular you are when it comes to repaying your dues on loans that you have taken. It will show a complete record of your past borrowing and repayment record including details about any late payments or if you have defaulted on a loan. This track record is readily accessible to lenders and is used by them to when reviewing your loan application. Borrowers who have historically had a bad record of managing...
Read more

Stock Market Concepts: Derivatives and taxation

DERIVATIVES refer to an instrument, which derives its value from the value of something else — that is, an underlying asset. In India, the derivatives space has traditionally been the playground for large institutional investors who use it for hedging or for speculative activities. However, with time, we have seen a steep augmentation in the per capita income of an average Indian. Consequently, the appetite for investment in alternative instruments has transcended into the need to explore untested territories, and one of the most lucrative of all the available options, is the derivatives. Taxation Of Derivatives: Let's have a sharp overview of how taxability impacts the dealings in futures and options: Futures: Since, there is no transfer or delivery of the underlying asset in case of futures, the income or loss from it cannot be taxed under the head "capital gains". Therefore, depending upon the fact whether the assessee is a trader or an investor, the head of income...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now