MUTUAL FUNDS

Funds with high duration would do well in 2013<
05-Jan-13   14:58 Hrs IST

Mr.Ganti N Murthy
The  10 year Gsec yield is  currently trading at  7.94%.  Depending on the quantum of rate cuts and inflation movement in the  next 6 months, we expect the  10 year to go to a level of  7.70% - 7.75% levels. says Ganti N Murthy, Head - Fixed Income Funds at Peerless Funds Management Company Limited.

We at Capital Market interacted with Ganti N Murthy to now the outlook on debt markets for the year 2013.

Excerpts:

1) Regarding debt funds, since there is still a fair amount of uncertainty with regards to the precise timing of the interest rate cuts as we head into 2013, how do you approach debt funds now? Is it better to put your money in some of these open ended funds or do you think you would still stick to some fixed maturity plans (FMP) or even fixed deposits?

The market has already timed that the  rate cuts would begin in the 1st quarter of  2013. That is why the yields have  fallen to new low. The 10 year Gsec yield is currently trading at 7.95% right now. With yields at such lows and   expected to go down further if there are further cuts and liquidity infusion , then investors  would do well in investing in  open ended gilt, Income and long duration funds. Such funds are expected to give better  returns  than any short maturity funds. The returns would be volatile but in a six month to 1 year horizon , they would give higher returns.

Coming to  FMPs and  Fixed Deposits, if interest rates are coming down , then it is better to lock up  on higher yields either in FMP's or even Fixed Deposits. But  this  is for those investors only who cannot stomach the volatility of the debt market.

2) What levels do you foresee for the 10 year benchmark government securities during 2013?

The  10 year Gsec yield is  currently trading at  7.94%.  Depending on the quantum of rate cuts and inflation movement in the  next 6 months, we expect the  10 year to go to a level of  7.70% - 7.75% levels.

3) What's your outlook on fixed income markets for 2013?

The outlook for the fixed income markets is bullish. We expect  yields to come down and  those funds with high duration would do well in 2013.

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