“Investors could allocate to liquid /liquid plus categories for their short-term needs and gradually add to target maturity funds over the next 3-6 months to help lock in higher rates,” said Nirav Karkera, research head at brokerage Fisdom. “Those with an appetite for risk could add credit risk funds.”
Fund managers expect the 10-year benchmark government bond to rise further by 25-50 basis points after it hit 7% last week. “The RBI is expected to increase the repo rate by 50 basis points this financial year,” said Akhil Mittal, senior fund manager (fixed income), Tata Mutual Fund.
As short-term rates tighten, liquid funds could yield better returns.
“With the removal of excess liquidity and rising short-term interest rates, return on liquid funds should improve going forward,” said Pankaj Pathak, Fund Manager, Quantum Mutual Fund.
Liquid funds – considered one of the safest debt categories – invest in securities with maturities of less than three months. Debt schemes that invest in short-term papers are best poised to benefit from rise in bond yields.
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