look news india
Indian debt mutual funds and bond markets are currently witnessing tremendous strategic turmoil. Amidst the changing trend of interest rates and economic policy signals, heated debates and different bets are being seen among the country’s leading fund managers regarding the duration of investment. In this entire fixed income segment of more than ₹ 22,000 crore, a war has broken out between Gilt Funds and Dynamic Bond Funds with dynamic asset allocation for investing the money of investors.
Different strategies of fund managers depending on the interest rates.
Fund managers are currently keeping a close eye on every small and big movement in the market. Some experts believe that interest rates may be cut by the Central Bank in the coming time, which is expected to provide excellent returns in long-term gilt funds. On the other hand, considering the fluctuations of the market, there is a large section which is giving preference to dynamic bond funds. Dynamic funds have the flexibility to instantly shift from short term to long term duration depending on market sentiment.
Long duration bet in gilt funds and its pros and cons
Gilt funds mainly invest in government securities, due to which the credit risk i.e. the risk of losing money is negligible. When interest rates are expected to fall, fund managers aggressively buy long duration government bonds. This is because the prices of these bonds rise rapidly when interest rates fall, giving investors huge capital gains benefits. However, if interest rates do not fall as expected, the risk of volatility in these long-term funds also increases.
Dynamic bond funds: the ability to change strategies with changing winds
The second big contender in this battle is dynamic bond funds. The managers of these funds do not fall into the trap of any one fixed duration. If they feel that there is uncertainty in the market or interest rates will remain stable for some time, they immediately transfer their holdings to short-term debt. This strategy is considered most suitable for those investors who are not able to track the market themselves and want to rely on the experience and active management of the fund manager.
What is the advice for local investors and investors of metro cities?
Awareness about fixed income has increased among retail investors in different geographical markets of India like Mumbai, Delhi, Bengaluru as well as Tier-2 and Tier-3 cities. Looking at the current economic scenario, financial advisors say that investors should take decisions based on their risk appetite. Those looking for complete safety and tax-efficient returns over the long term are turning to gilts, while those looking for medium term and flexibility are increasing their allocation to dynamic funds.