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Ideal debt fund holding period and product categoryAvnish Jain, Canara Robeco MF, Mumbai

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Regulatory tightening around credit funds and the recent introduction of CDMDF (Corporate Debt Market Development Fund) are welcome steps, says Avnish – but he is still not convinced that the market structure is conducive to running retail open ended credit risk funds. Credit risk products are best left to the AIF space where you have more experienced and aware investors and lower liquidity in the product.

Indian yields have decoupled from the West largely because now we are the ones exhibiting more fiscal and monetary responsibility while the US’s monetary tightening is getting blunted by fiscal profligacy. Our yields are on a gentle downward glide path – expect the 10 yr G-Sec to be in the 6.75% - 6.90% range in next 12 months.

Yield curve is currently flattish. Expect some steepening when expectations start building up on rate cuts. Avnish is currently maintaining duration at around 3 yrs in their Corporate Bond Fund, 4 yr in their Gilt Fund and 5 yrs in their Income Fund.

For investors wanting dynamic portfolios, now that the 3year tax-oriented anchor is gone, investment horizon becomes view based. Currently, a holding period of 18-24 months seems good to play out a forthcoming rate cut cycle.

For long term investors, Corporate Bond Fund seems the most appropriate product as it invests only in high quality corporate papers and has the ability to manage duration to some extent to seize opportunities present in the yield curve from time to time.

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