Short, medium duration funds remain best option: Experts

financialexpress.com:

Long duration funds may not be the best option to invest in at the moment, with debt fund managers saying short and medium duration funds remain ideal at this juncture.

The central bank’s Monetary Policy Committee (MPC) last week kept the repo rate unchanged, retaining its ‘withdrawal of accommodation’ stance. The hawkish tone didn’t surprise the markets, thanks to inflation remaining the primary concern.

Consequently, analysts believe rate cuts are off the table till at least July 2024.

Fund managers had earlier said the time was ripe to enter fixed income and increase duration, with the expectation that interest rates had peaked. The view has hardly changed, with experts saying the high yields still make debt funds an attractive proposition.

“We continue to expect the Fed to ‘Pivot’ and start cutting rates in the first half of CY 2024. At the same time, we expect the RBI to cut rates by at least 50 bps in CY2024, starting April. Given the view, we advise investors to increase duration. Investors with an 18-month horizon could look at the Banking PSU Fund, Medium Term Fund, and Dynamic Funds,” says Deepak Agrawal, CIO (Debt), Kotak Mahindra AMC.

According to him, a fixed income portfolio with duration in the band of 3-5 years is ideal for investors.

The 10-year bond yield in India is hovering around the 7.2% mark.

Data from Value Research shows that medium-to-long duration funds, which have a timeframe of 4-7 years, have returned an average 4% over the last three years and 6.3% over the last one year. During the same period, short duration funds or those with a timeframe of 1-3 years, have returned an average 4.8% and 6.2%, respectively.

“From an investment standpoint, long duration is not a suitable asset class at this