Muted For Now, Not Forever

In our April 2022 issue, we discussed the requirement of adequate holding period in debt funds for achieving optimum returns. That’s because, while there is a steady accrual in all debt funds, transient market movements can take away from, or add to the accruals in the portfolio. Current Situation Of Bond Funds Over the last one year or so, returns from debt funds have been muted because yield levels (interest rates) in the market have been moving up in anticipation of rate hikes by the Reserve Bank of India (RBI). The central bank has now started hiking rates, and, consequently, yields are moving up further. RBI’s rate hike cycle will continue now, maybe, for a year or so. Hence, for the next one year, the impact of market movement of interest rates is going to be adverse. This means that while accruals in debt funds will happen as usual, the mark-to-market impact will take...