“You will see NAVs turning a little negative today because the yields are up across the curve, and when the yields go up, prices come down and the NAVs get impacted adversely,” says Lakshmi Iyer, CIO -Debt & Head-Product at Kotak AMC.
The benchmark 10-year G-Sec yields have risen 24 basis points to 7.66 in the last three working days. The rise came after a three day continuous fall in yields.
Mutual fund managers say debt mutual fund investors should stick to schemes with low credit risk to stay clear of trouble.
“Investors should continue to choose fixed income funds which take low credit and market risks,” says Arvind Chari, Head Fixed Income — Quantum AMC.
Most money market experts believe that the instability will continue in the coming days. They say the resignation by the RBI Governor due to his differences with the finance ministry and BJP losing the key state elections would keep stock markets, bonds, and currency highly volatile in the near future.
“Given the negative news of RBI Governor’s resignation and the prospect of BJP losing in key state elections, Indian markets, bonds, currency and equities will see a negative reaction. The bond market is likely to remain volatile. Markets will react further on the appointment of the new RBI governor,” says Chari.
Mutual fund managers warn investors not to react to the news which are temporary in nature as these unlikely to have a permanent impact on the bond markets. They ask investors to stick to their plans.
“I don’t recommend any change in strategy on the basis of an event which is a temporary setback rather than a permanent one. You should continue to stick to your plan. I recommend investors to remain at the short end of the yield curve,” says Iyer.
And if you want some certainty, you may consider locking in into the corporate bond yields at the current level, they look certainly fine, she adds.
Fund managers believe the ease in oil prices and open market operations from the RBI would support bond yields.
“On the macro front, given that oil prices have fallen and that RBI is likely to continue its Open Market Operations (OMO), would provide support to bond yields,” says Chari.