Staggered investment in gilt funds may help beat inflation
mutual funds such as gilt schemes which bet on long-term government securities. Fund managers believe the Reserve Bank of India's move to leave the repo rate unchanged at 6.5% with a focus of bringing inflation down presents an opportunity to long-term fixed-income investors. Investments in such funds with a two- to three-year view would help earn about 200 basis points above inflation, they believe.
«The 10-year benchmark yield above 7% presents a good opportunity for long-term fixed-income investors to stagger their investments into long-tenure funds over the next four-six months» said Sandeep Bagla, chief executive at Trust Capital. Such a strategy would help investors beat inflation and also earn a capital appreciation when interest rates fall, according to him.
Fund managers believe the near-term rates are likely to be volatile and could move a bit higher given the RBI indication of open market operations to manage liquidity. This move has already pushed up the 10-year benchmark by 13 basis points to 7.38%. In the last quarter, the 10-year benchmark bond yield had risen just 20 bps. A note by Franklin Templeton Mutual Fund says with the likelihood of core inflation staying sticky and likely moderation in growth, the easing rate cycle could only start in the fourth-quarter of calendar 2024, in the form of shallow cuts.
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«Given the current growth-inflation dynamic in India, we think that RBI will be on a long pause with no pressing need to cut rates at least till this fiscal year end. The 10-year benchmark will trade in a range of 7.25-7.60% over the next couple of months,» said Puneet Pal, head — fixed income
