Active and experienced debt fund investors who are looking to make the most of this rate cut cycle should consider the prospect of 10yr G-Sec yields remaining in the current range of 6.20-6.40% over the next 6months. Any move down below this range will be predicated on data in the coming quarters that suggests further global slowdown than what is being currently priced in.
Active investors can consider tactical switching from long duration to short duration bond funds now, as spread compression in the 1-3 yr segment looks likely.
Kaustubh is however not ruling out the prospect of 10 yr yields dipping to 6% or below towards the end of FY26 as a possibility does exist that trade and tariff wars might drag down global growth and with that yields.
Beyond active debt fund investors, there is an ocean of conservative savers who continue to prefer traditional fixed income instruments, despite the rather healthy track record of ultra short, short term, corporate bond and other short to medium duration funds.
The way to break in is to start small and simple – ask your clients for a small investment in a liquid or ultra short term fund, let them get the experience of a full cycle of investing, redeeming and seeing the credit back into their bank accounts.
Once their confidence starts building, get them to gradually add short term and accrual based funds in their debt portfolios.
Industry data suggests that while investors come into ultra short term funds with very short term timeframes in mind, they land up staying invested on average for 4 months or more. The story repeats with short term funds too.
Liquid to ultra short to short to corporate bond funds –that’s perhaps the way to gradually wean your clients into debt funds. Avoid higher volatility debt funds for those who are coming out of FDs into MFs.