Time to look at Debt Mutual Funds with the recent rise in bond yields

Yields have increased for Indian government bonds amid the Israel-Palestine conflict and its impact on oil, and uncertainty on RBI’s liquidity actions. This increase is evident from the chart below – the 10-year G-Sec yield^ was 7.50% on Oct 20, 2023.

So how can investors capitalize in the current environment?

Consider investing in the different duration-based debt fund options available. Duration refers to interest rate risk of the fund and indicates how much the fund NAV moves when yields change. High duration funds will see a greater rise in NAV when yields decrease than low duration funds, all else equal. Bond prices and yields move in opposite directions. A point to remember is that this works in the reverse too. Different duration-based options are:

On an overall basis, yields are likely to trade in a range given the local and international backdrop. While we continue to recommend investments into short to medium duration debt funds, given the sharp rise in yields in the past couple of months, investors could consider higher allocation to longer duration funds in a staggered manner, in line with individual risk appetite.

Note: It also recommended that investors seek opinion from an expert / financial advisor before making their investment decisions.

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