[civic-dk]

Originally Posted by lapis_lazuli

Most debt funds have done well in the last few quarters of falling interest regime. Rates seem to be at minimum possible lows. What's the outlook over the next 3/6/12 months for the following:

1) Short term funds
2) liquid funds
3) Dynamic bond funds
4) corporate bond funds

Thanks 😊

I will add Gilt funds to this list.

[RJK]

Originally Posted by civic-dk

I will add Gilt funds to this list.

+1!
I have been evaluating investing in Gilt funds (Thanks to Mr.Smartcat!) but looking at the interest rates now, I have a *feeling* (no data to back it up) that interest rates might rise. If they do, NAV's of GILT funds will go down & I will have invested in GILT funds at a higher price!

So, any pointers/arguments refuting my feeling of rise in interest rates is very welcome!

On the same subject, how are Low Duration funds in comparison? I came across these recently.

Cheers

[SmartCat]

Originally Posted by lapis_lazuli

What's the outlook over the next 3/6/12 months for the following:

Originally Posted by civic-dk

I will add Gilt funds to this list.

Originally Posted by RJK

I have a feeling (no data to back it up) that interest rates might rise. So, any pointers/arguments refuting my feeling of rise in interest rates is very welcome!

This is a futile exercise

On the same subject, how are Low Duration funds in comparison? I came across these recently.

https://www.valueresearchonline.com/...s&tab=snapshot

Average maturity of Low duration funds is around 1 year and yield to maturity is 4% to 4.5%. In March 2020, their NAV fell drastically (implies liquidity risk). Risk reward is NOT attractive, in my opinion.

[RJK]

@Smartcat,

If the yield to maturity is so low, is it not simpler to just leave the money in savings account which offers around same 4%? Especially for folks who have no income.

Cheers

[SmartCat]

Originally Posted by RJK

If the yield to maturity is so low, is it not simpler to just leave the money in savings account which offers around same 4%? Especially for folks who have no income.

That's why I mentioned low duration funds are NOT attractive.

Anyway, remember that fund manager can theoretically generate higher than current YTM % over the next 12 months - by exiting "overpriced" bonds and buying "underpriced" bonds. But that's not a good enough reason for making fresh investments.

[subhro1988]

Given that I am professionally employed with an Indian Mutual Fund and working in the Fixed Income Investment department, here is my 2 cents -
1) Always judge and gauge your own risk appetite before investing in any mutual fund scheme (be it debt or equity). The risk appetite can be different for the different types of funds that you have. An emergency fund should always be invested in Liquid/overnight funds; while a long investment should typically be in a 3 year FMP (to take LTCG advantage) or a Corporate Bond Fund; the part of fund which you feel you can play around with can be invested in Credit Risk Fund
2) Have a view on your investment horizon for your different types of funds
3) in debt funds you run the risk of -
i) credit default risk (mutual funds have become very conservative and risk averse after ILFS and other defaults in 2018 and 2019)
ii) interest rate risk (Fund Managers manage this risk extremely proactively on both side of the interest rate cycle)

[JediKnight]

Is the expense ratio already accounted for in yield to maturity or should it be subtracted to get the real yield to maturity ? My hunch is that it has to be subtracted because i see same yield to maturity for direct and regular plans.

[Fx14]

Originally Posted by RJK

If the yield to maturity is so low, is it not simpler to just leave the money in savings account which offers around same 4%? Especially for folks who have no income.

In case the balance amount to be left aside is over a lakh, you could also consider savings accounts with some of the smaller private sector banks that offer higher graded interest rates of upto 6-7% or so, depending on the balance maintained.

And if lock - in of funds is not an issue, then FDs would be even better, especially in case of Senior citizens.

[alexgv]

Originally Posted by RJK

@Smartcat,

If the yield to maturity is so low, is it not simpler to just leave the money in savings account which offers around same 4%? Especially for folks who have no income.

Cheers

Do note SBI and perhaps other banks have reduced Saving Bank account interest to 2.75%
I did notice that Post office savings bank still gives 4%

[RJK]

Originally Posted by Fx14

In case the balance amount to be left aside is over a lakh, you could also consider savings accounts with some of the smaller private sector banks that offer higher graded interest rates of upto 6-7% or so, depending on the balance maintained.

And if lock - in of funds is not an issue, then FDs would be even better, especially in case of Senior citizens.

Yes, thats what I mean. IDFC bank gives about 6% in their savings account for the time being.

[ghodlur]

Anybody recd a call from Franklin India MF regarding the voting for the winding up of the 6 debt schemes? I was being continuously being reminded by the lady on the call to vote for Yes if I wanted to redeem my investment in the Ultra short term bond fund. She also kept reminding me that a No vote will result in the crash of the NAV of the debt funds. Also a Yes vote will need an authorization to either Franklin trustees or Deloitte or somebody appointed by SEBI to minor the redemption process.

[Saanil]

I had a question regarding Gilt funds. Interest rates, in my view, are probably not going to go down further from current levels. If interest rates rise in the coming months, the value of gilt bonds should fall. Since gilt funds have high duration, the logic for not investing in gilt funds is that their value will decline by a larger magnitude that debt funds with lower duration.

I did some research on how gilt funds perform during rising interest rates. As per the logic mentioned above, gilt funds should show negative returns during higher interest rates. I took one sample in order to evaluate this - the period from early 2010 till early 2012 saw increasing repo rates and I tracked NAV performance of few gilt funds. Interestingly, all the gilt funds showed positive returns of 4-5% in that period. I am sure this would attributable to the actions taken by the fund manager. I was under the impression that the NAV of gilt funds should decline when interest rate increase but this is not a certain event. I might be wrong in drawing such conclusion and wanted to check what people on this forum think about this dynamic.

Current fixed deposit rates are around 4.5%. I was thinking of investing some money in gilt funds as an alternative to fixed deposits. I am not keen on making fixed deposits with NBFC’s / newer banks that are offering aggressive FD rates.

[SmartCat]

Originally Posted by Saanil

I took one sample in order to evaluate this - the period from early 2010 till early 2012 saw increasing repo rates and I tracked NAV performance of few gilt funds. Interestingly, all the gilt funds showed positive returns of 4-5% in that period. I am sure this would attributable to the actions taken by the fund manager.

Two reasons:

- Fund manager of a gilt fund can move 50% of assets into short term treasury bills. These give high returns when interest rates are rising.
- Remember that 10 year govt bonds pay interest frequently. Such interest accrual boosts NAV.

Gilt fund returns each year:
https://www.valueresearchonline.com/...returns-annual

Gilt funds have offered positive returns every year since 2010:



despite interest rates on 10 yr bonds swinging wildly (7% to 9% to 7.5% to 9% to 6.5% to 8% and now at 6% as of today) :
https://tradingeconomics.com/india/g...ent-bond-yield

I was under the impression that the NAV of gilt funds should decline when interest rate increase but this is not a certain event. I might be wrong in drawing such conclusion and wanted to check what people on this forum think about this dynamic.

If a company declares a loss, it does not necessarily mean stock price will fall. Because investors might brush off the results as a one-time thing and look into the future. If a company declares big profit, the stock price will not necessarily rise.

Similarly, bonds too price in the future. If RBI slashes interest rates but is cautious about its interest rate outlook (Hawkish stance), gilt fund NAV might not rise. Conversely, if RBI raises interest rates but has a "dovish stance" (meaning, if RBI says inflation will ease in a few months), gilt fund NAV might not fall at all. Even if RBI does not change rates but gives a "dovish" or "hawkish" outlook for the near future, gilt fund NAVs will react. By the time RBI actually changes the interest rates, it might already be "priced" into the bond market

Current fixed deposit rates are around 4.5%. I was thinking of investing some money in gilt funds as an alternative to fixed deposits. I am not keen on making fixed deposits with NBFC’s / newer banks that are offering aggressive FD rates.

Go ahead. But treat it like a 5 year fixed deposit. This is not a short term investment.

[Saanil]

Originally Posted by SmartCat

Gilt funds have offered positive returns every year since 2010:

Go ahead. But treat it like a 5 year fixed deposit. This is not a short term investment.

Thanks a lot for this informative chart. I am surprised/relieved to see positive returns in all these years. I agree with your suggestion that I will need to take a longer term view if I am planning to invest in Gilt funds. I am thinking of a combination of gilt funds and liquid funds for parking excess liquidity.

[GTsunny]

Originally Posted by SmartCat

All you need to do is look up its "Yield to Maturity" and "Average Maturity".

Not sure if this is the right place to post, couldn’t find relevant thread to post this, mods pl shift to relevant thread if wrongly posted here thanks.

Are there any free or paid websites and / or apps that provide YTM for all NCDs traded in Indian market thanks, used to access trackbonds.com, this website seems to be shut for a long while now, this website gave YTM and current traded prices for some but not all NCDs traded in market.