Domestic yields have moved up primarily due to the sharp rise in global yields.

With rates expected to remain within a range, investors with a longer time horizon with a conservative to moderate risk profile could invest in short-term funds says Mahendra Jajoo, Head-Fixed Income, Mirae Asset AMC. Excerpts:

 

What is your expectation on RBI’s rate actions in the coming year? Where do you see yields headed?

The RBI’s latest policy was comforting in that it offered balanced commentary on growth and inflation. This implies that yields on 10-year G-Secs have peaked at least for the next six months.

Domestic yields have moved up primarily due to the sharp rise in global yields. We do not expect RBI to hike rates this year. Rather it is likely to go on a long pause.

Hence, while we do not see yields moving lower, they are unlikely to rise sharply from here on. Of course thrre are some risks to this outlook — rise in oil prices being a key one.

What is your view on the liquidity situation in the system? Will the RBI step in to ensure liquidity as it dries up?

There was a time post demonetisation, when the RBI had to step in to suck out excess liquidity.

For now liquidity remains comfortable. The RBI has enough tools to manage liquidity if the need arises.

Two moves by the Centre in the Budget — one to allow increased investment in relatively lower-rated ‘A’ grade bonds and the other to mandate large corporates to meet one-fourth of their financing needs from the bond market — are expected to help deepen our corporate bond markets. Your thoughts?

The government had hiked provident funds investments in equities some time back. That did not necessarily lead to increase in equity investments by these funds.

Similarly, while the government is looking to increase investment limit in lower grade corporate bonds, it will not necessarily lead to increase in investments in such bonds. Though this will be a facilitator, the whole culture has to change. We need to see how this develops.

As far as nudging corporates to borrow one-fourth of their requirement from bond market goes, we need to look at the operational guidelines to see how this pans out.

Your fund house has very limited number of debt fund schemes as of now . So are you looking to increase your debt fund portfolio?

Mirae Asset will be enhancing its product basket this year to provide, and with this thought we are launching a Short Term Fund.

The NFO period of the fund will be from February 23 to March 9, 2018. The fund will reopen for fresh purchases on and from March 19, 2018.

The investment objective of the scheme is to seek to generate returns through an actively managed diversified portfolio of debt and money market instruments with Macaulay duration of the portfolio between one and three years. The fund will mainly invest in AAA and AA corporate bonds.

The fund may also look for opportunities from credit spreads among the range of available debt & money market instruments.

What are you recommending investors at this point of time?

Our overall view on rates is that it will remain within a range.

So investors with a very short-term horizon can look to invest in liquid funds or low maturity funds, while those with a longer time horizon with a conservative to moderate risk profile could invest in short term funds, while investors with a longer time frame and bit more aggressive profile should be investing in dynamic bond funds. Investors can look at debt investing as part of their asset allocation strategy and can invest in debt funds via SIP to take advantage of any market volatility.

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