Overall, overnight (Rs 6,337 crore inflows), ultra-short (Rs 4,511.77 crore) and short-term debt funds (Rs 4,202.96 crore) saw inflows of around Rs 15,000 crore in October.
Investors invest money in these funds for a short period ranging from a few days to a few months.
According to debt mutual fund managers, investors are turning to these short-term funds for stable returns as they believe that the central bank may start raising rates soon.
Akhil Chaturvedi, Chief Business Officer, Motilal Oswal, said, “If inflation continues to rise, the RBI may revisit the accommodative stance that it has adopted to support growth. I believe investors will Sitting with high allocation in short duration funds for stable returns and low volatility. Asset Management Company.
Lakshmi Iyer, CIO (Debt) and Head of Products, Kotak Mahindra Asset Management Company, tells investors who have less Investment Horizon finds these funds suitable for their investment goals.
“Some investors do not seem very satisfied with the returns of liquid funds. Also, they may not have a very long investment horizon and this is where the short duration category fits in. Those with an investment horizon of more than six months can see it. category,” observed Iyer.
Should you invest?
Many investors and advisors are of the view that a hike in interest rates could lead to further downside in debt funds. He believes bank deposits are better at the moment.
“Liquidity and rate normalization cycles are likely to be gradual so the earnings case in fixed income is still there. While we may see volatility in the coming months, one can still invest in debt funds depending on the investment horizon. Can do.” Iyer.
Unlike long-term debt funds, very short-term funds like ultra-short-term and short-duration debt funds are less likely to be affected by strict rates. In fact, they may benefit marginally from the rate hike as they begin Investment In papers with high coupon rates.
Debt funds, especially long term funds and gilt funds, suffer losses when interest rates rise as it reduces the NAV of these funds. This is due to the inverse relationship between bond yields and prices. When bond yields rise, the prices and NAVs of schemes go down.
According to Chaturvedi, fixed-income investors should stay on the short end of the yield curve in the medium term. “It would be wise for retail investors to avoid any aggressive calls on interest rates or credit,” Chaturvedi said.
Fund managers ask investors to modify their investment strategy based on their financial goals and risk appetite, not just the market conditions.
“It is important for every investor to stick to asset allocation and not deviate from that path even during volatile times. There are strategies in fixed income to suit different rate cycles. Hence, one can identify such categories without losing risk. It is important to do hunger,” said Iyer.