Skip to main content

How to Invest in Debt Markets when Its volatile

Equity has fresh competition. In volatility that is. Gilts have turned pretty volatile the last few months so much so, that at times, they behave like small-cap stocks! Debt markets have been swaying based on the season's sentiment. Analysis of the movement post August last year shows the swings, thus reflecting the changing moods of the market. A year ago, it was all looking benign to the extent that some felt the RBI was behind the curve on cutting rates.

Broken sentiment

A series of events and news flows dented the confidence of the markets. From fears of the government breaching the borrowing target as a result of a tight fiscal deficit target to the nervousness post Gujarat elections, all the way to the Union Budget, we witnessed relentless pounding of long-end gilts. News bytes coming out of the RBI added to the already battered sentiment. Despite a bit of fire-fighting by the government, the back of the market was already broken.

The Union Budget threw up more questions and despite the government's pronouncements, newer fears capped any semblance of positive sentiment. In the space of 3-4 months, the 10-year has swung from 7.15% to 7.88%. If one were to track the 10-year gilt from March 2017, it has moved from about 6.69% all the way to about 7.88%. To put this in perspective, the current 10-year benchmark security, i.e., 7.17% GOI 2028 was issued on January 8, 2018 at Rs 100. This security was traded around Rs 95.33 on May 25, 2018. This meant an absolute loss of 4.67% in a matter of months! On an annualised basis this is -12.44%. Remember, we are talking debt returns and not equity movement.

Equity investors would be pardoned if they think the range was too small by their market standards. Only bond investors would understand the anxiety during swings such as these. From bleeding bank treasuries to retail investors licking the wounds through their debt MF investments, large parts of the participants saw valuations take a knock down.

What now?

Election year concerns along with PSU bank write-offs will continue to haunt markets. This time around even shorter-term bonds have lost value on the back of tightening liquidity. As cash in the public's hands has gone back to pre-demonetisation days, liquidity with banks have come down. With the currency weakening sharply, RBI has had to intervene to cool the runaway movement, thus sucking INR liquidity.

What should investors do?

After enjoying high returns for a couple of years, the last one-year returns on bond funds have started to weaken. While 2016 was a year of double-digit returns, the latter half of 2017 saw sentiment turn and returns have since trended down. The best bet is to retain existing investments so long as the time frame is 3 years and above. Importantly, return expectations need to be reset to around 7-7.50%, especially since inflation has also come off from the lofty levels that were seen until the RBI started targeting the Consumer Price Index.

Nervous investors who cannot weather volatility can switch to short-term funds. If a lock-in is something they can consider, Fixed Maturity Plans (FMP) offer a compelling alternative. With short- to medium-term yields elevated, these FMPs can deliver attractive returns without having to compromise on the credit quality.

Tax-free bond yields in the secondary markets have inched up over 6.25% and offer a safe bet. Non-tax or low tax bracket investors would have an opportunity to get higher returns on fresh fixed deposits and NCD investments. Here, we wish to caution investors that it is better to stick to well rated and better known entities, rather than go for lower credit instruments. After all, investors get into debt investments for safety over higher returns.

In summary, one needs to realise that every now and then bond markets suddenly wake up to remind the world of its existence. At times when rates soften, bond investors rejoice, whereas, when rates harden, the story takes a bad turn.




SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- 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. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Mutual Fund Exit Load Changes

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 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
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