RBI Bites the Bullet – Twice

Dear Friends,

 

I am reproducing extracts of an article dated 3rd Aug which appeared in Economic times, with some portions highlighted (full article appended below). This article highlights how fund managers are advising their clients to exit long term debt funds and shift investments to short term funds.

 

My take is, we have to preempt, rather than taking action when the horse has bolted from the stable.

 

To validate what I mean, I am also reproducing portions of my articles on the subject in last few months.(full articles can be read under  blog section at www. riddhi-siddhi.org)

 

 

 

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A brief return summary of Accrual and Duration funds is given below:

 

Returns As on 31st July 2018
Return Period Accrual – Short term Accrual –Long term

(Credit Risk )

Duration – Long term (Income Fund) Duration – Long term (Gilt Fund)
3 Months 5.91 6.12 4.57 5.20
6 Months 5.28 5.39 2.72 3.76
12 Months 4.52 4.98 0.22 -0.49
24 Months 6.45 7.21 4.64 4.87

 

Returns depicted are annualized %.

 

(NB: the above is indicative only and taken from various sources. Investors should verify before investing based on above data)

In last two month, RBI has raised repo rates twice by 25 basis point each. The current bond yields are hovering around 7.9% , which indicates that bond markets are expecting another 25 bps hike in times to come. My sense or belief is that, economy can, at the most take 25/50 bps hike in interest rates in next 12 months. Anything more than this, should result in dampening the economic growth and subsequently the stock markets.

As such, in debt funds, investors should invest in Short term Accrual schemes only with 12 months maturity paper max.

With warm regards,

Samrendra Tibarewalla, CFP (CM)

9831001983

NB : Full blog/articles can be viewed at www.riddhi-siddhi.org

PS: You are the best manager of your money. Please take informed decisions only.

Disclaimer : The author in no way will be held responsible for losses incurred on the basis of above re commendations. The investors are advised to take independent decisions after verifying all facts.

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