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<\/p>\nDebt fund managers are reassessing their strategies after the setback delivered by the Reserve Bank of India recently.<\/p>\n
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While most are refraining from any knee-jerk reaction to the central bank’s surprise open market operation (OMO) announcements, they are taking a re-look at the duration of their schemes.<\/p>\n
Sandeep Yadav, head of fixed income at DSP Mutual Fund, said it has trimmed the duration of some schemes, considering the hawkish stance by the RBI.<\/p>\n
“When things are not in control, it’s prudent to reduce the risk.<\/p>\n
“Recent, the RBI policy has brought an element of surprise and chance in markets.<\/p>\n
“We have reduced the duration in some of our schemes.<\/p>\n
“However, we still have a bullish bias and will look to maintain a medium duration in our dynamic bond fund portfolio,” he said.<\/p>\n
Most debt fund categories in the medium-to-longer horizon saw a decline in their net asset value (NAV), after the RBI’s announcement led to a spike in yields.<\/p>\n
Few schemes in the gilt and dynamic bond fund categories declined as much as 0.9 per cent on October 6.<\/p>\n
Most fund managers are looking at the development as a temporary blip and want to continue with a largely-unchanged strategy.<\/p>\n
“The developments post a near-term challenge to our overweight position in 9–14 year bonds in our active duration funds.<\/p>\n
“Our fundamental premise here was a more favourable demand-supply situation.<\/p>\n
“However, now the RBI has emerged as a new supplier of government bonds.<\/p>\n
“While there is no explicit calendar for this, a long sword hangs now that such OMOs can be announced any day,” said Suyash Choudhary, head – fixed income, Bandhan AMC.<\/p>\n
Choudhary, however, is looking to continue with the same strategy on the premise that the OMOs are unlikely to skew the demand-supply situation of government bonds.<\/p>\n
Debt fund managers’ duration stance is evident from their dynamic bond fund portfolios.<\/p>\n
In most other schemes, they have limited room to play around durations.<\/p>\n
At the end of August, six out of 29 schemes had an average portfolio maturity of seven years.<\/p>\n
Of the rest, 11 had an average maturity between five and seven years.<\/p>\n
Some fund managers have been bullish on the longer-duration government bonds owing to better demand and end of the rate hike cycle.<\/p>\n
Yadav said the longer-duration papers (30-40 years) look attractive from the demand-supply point of view.<\/p>\n
“The chances of a rate hike remain remote.<\/p>\n
“On top of that, there’s strong demand for longer-duration papers from provident funds and insurance firms.<\/p>\n
“For the past few quarters, RBI has been increasing the amount of issuances in the 30-40 year bracket.<\/p>\n
“Yet, the demand has been able to absorb the increased supply.<\/p>\n
“On top of that, there will be a new stream of demand from next year — the JP Morgan bond index. Given the genuine demand, we believe that these long-maturity papers are a good investment,” Yadav said.<\/p>\n