The Hindu Business Line : MFs foresee debt funds comeback

Leading fund houses have indicated that the days of debt funds are back. The hardening interest rates including short-term rates and cues from global equity markets have driven them to a view that heightened activity in the debt market is in the offing in the coming months.

"Come December, you will see a whole lot of activities in the debt market. It may be worthwhile to look at some g-sec funds. By then, the rates will also have stabilised," Mr A.K. Sridhar, Chief Investment Officer (CIO), UTI Mutual Fund, said at the `Mutual Fund Knowledge Summit', organised by ICICI Bank.

Mr A. Balasubramanian, CIO, Birla Sun Life, said debt as an asset class would make a come back, especially as a prudent investment discipline. Although equity has given good returns in the last three years, he highlighted that equity markets tend to perform in bits and pieces.

Rates to move up

While pointing out that short-term interest rates have increased from five per cent to eight per cent, he said that a time would come this year when the g-sec yield would touch 8.5 per cent. He also highlighted that fixed deposit rates have gone up.

Mr Sridhar said he does not see interest rates going up dramatically in the coming months.

"Maybe it (10 year government paper) will touch 8.5-8.75 per cent or in the worst case 8.6-9 per cent, I don't see interest rates going up to 14-15 per cent levels to make the economy inefficient. We have moved out of that. One can never imagine that happening," he said.