Stagger investments in dynamic bond funds, over next quarter

Mumbai: Wealth managers are busy changing their fixed income strategy, post the Fed hiking rates by 25 basis points and the Reserve Bank of India keeping rates unchanged last week. While earlier they were placing higher bets on duration strategy expecting the RBI to cut rates aggressively post demonetisation, they now believe rate cuts will be slower and take some time. To make the most of this, they are recommending dynamic bond funds to investors.

“Domestic fundamentals are strongly supported by a fall in inflation,” says Mahendra Kumar Jajoo, Head (fixed Income), Mirae Asset Management. He expects rates to fall by 25-50 basis points over the next six months. The best way to ride this is using dynamic bonds. He advises investors to use a staggered approach for the next three months.

Post demonetisation, as liquidity swelled with banks, the yield on benchmark, 10 year fell from 6.8% to 6.2%, by 60 basis points. However, post the Fed rate hike, RBI keeping rates unchanged, the the markets reacted and yields rose by 34 basis points to touch 6.54.