Investors with a 6 to 12 month horizon may consider them. They should align their holding period with the fund's maturity profile and prefer schemes with a lower expense ratio.
'Investing in these funds makes sense if their net yield over better-quality funds -- corporate bond funds or banking and PSU funds -- is meaningful.'
'They are positioned as defensive products and can potentially give marginally higher returns than liquid funds.'
'Maintain a balanced approach with a preference for short-to medium-duration funds.'
With the interest rate cut cycle nearing its end, several debt fund managers are shifting their focus towards interest income rather than betting on duration in anticipation of capital gains.
Despite similar tax treatment, debt MFs enjoy certain advantages over FDs.
'They are ideal for short-term financial goals like children's education or a down payment for a house.' 'They are also useful for transitional savings, such as during job switches or while starting a business.'
'Young investors should focus more on equity, while retired senior citizens should prioritise fixed income.' 'Mid-career investors should aim for a balanced allocation.'
'When interest rates rise, the NAVs of these funds will fall.' However, they won't fall as much as longer-duration funds.
'A dynamic bond fund acts like a gilt fund in a rate cut scenario and like a conservative short-term bond fund when rates rise.'
By taking the mutual fund route, investors can take exposure to gilts with small amounts. Over a decade or more, returns from these funds tend to be sound.
Floating-rate mutual funds are back in demand after a year-long period of consistent outflows. In the past three months, investors have poured over Rs 6,100 crore into these debt schemes, indicating a reversal in fortunes for the category that recorded outflows for 11 consecutive months (May 2022 to March 2023), totalling Rs 32,250 crore. Floating-rate funds invest at least 65 per cent in floating-rate instruments, which have their interest rates linked to the Reserve Bank of India repo rate.
'If rate cuts happen, bond yields will come down and investors will make mark-to-market capital gains on them.'
Opinions vary, but fund managers remain bullish.
Tactical investors should have an investment horizon of around six months to one year, long-term investors should stick around for 10 years or more.
Actively managed debt funds with the flexibility to go long on duration made a strong comeback on the returns chart in 2023, thanks to softening bond yields. The average one-year returns of floater, long-duration, gilt, and dynamic bond funds, which ranged between 2.3 per cent and 4.5 per cent at the end of 2022, now stand at over 7.2 per cent, with some schemes delivering over 8.5 per cent, according to data from Value Research. Debt fund returns are inversely related to yields of underlying investments, meaning a decline in yields is positive for funds.
'Your decisions should not be driven by your view on the market, but by your objectives, risk appetite, and time horizon.'
These schemes are a good choice for investors contemplating a large investment in equity funds. Instead of investing all the money in one go, they can do so in a staggered manner by parking it in these schemes and then transferring it to equity mutual funds through a systematic transfer plan.
'They can transition from short to long-duration funds when the yield curve normalises.'
'Banks will continue to increase FD rates to attract more deposits and meet the increasing demand for credit.'
Before you invest, check the fund manager's track record in managing such a strategy, asserts Sarbajeet K Sen.
Despite the current bout of volatility, debt-oriented hybrid funds remain well suited for risk-averse investors.
The bonds were available for seven years. Since these were not traded in the secondary market, redemption took place at maturity.
TMFs invest in a public index, so investors know beforehand which instruments the fund will invest in.
An NCD's credit rating will tell you whether risk possibility is high or low. Instruments rated below AA are regarded as high-risk.
'The long maturity of these funds makes them well-suited for long-term financial goals such as saving for retirement or children's education or marriage.'
Select the exact category by matching your investment horizon to the portfolio duration, suggests Sanjay Kumar Singh.
Improved credit profile may make you eligible to transfer your existing home loan to another lender at a much lower rate.
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Rebalance the portfolio at least once a year to ensure it remains in sync with the target asset allocation.
Investing merely on the basis of past return can land you in trouble even in debt funds, a supposedly safe asset class, suggests Sarbajeet K Sen.
If you plan to invest in an FD, go for the 12-15-month tenure. This will allow you to redeploy maturity proceeds at higher rates (if rates rise), advises Sarbajeet K Sen.
After the Franklin Templeton episode, investor confidence has been shaken. Known brands have become more relevant to investors, as long as this psychological impact lasts.
The bond market is not in a mood to reason with the Reserve Bank of India (RBI) on keeping yields low. The 10-year bond yields continued to rise for the fourth straight session to close at 6.202 per cent from its previous close of 6.135 per cent. The yield was at 6 per cent a week ago. The RBI wants the yields to remain at 6 per cent, but bond dealers say the central bank will have to step up its bond-buying programme.
Investing in special situations can help you tap opportunities that arise during adverse conditions, advises Joydeep Sen.
The spreads between state development loans and equivalent-maturity government papers have started widening, and market participants don't expect them to contract anytime soon. The rise in spreads is a direct measure of market displeasure than a rise in yields.
According to bond dealers, the spike in CD issuance could indicate that liquidity won't remain as comfortable by the end of the financial year (March 31) as it now is.
Prime Minister Narendra Modi will on Friday launch two schemes of the Reserve Bank of India (RBI) that may go a long way in changing how the household sector invests, and complains if anything goes wrong with their savings. These schemes - retail direct and an integrated ombudsman - will be launched by the Prime Minister virtually, in the presence of Finance Minister Nirmala Sitharaman. With the introduction of retail direct, a common man can directly take a position in government securities (G-Sec), considered to be the safest asset class a sovereign can offer.
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