Has anyone noticed that debt fund returns have flattened in the last few months?

[mon4thelord]

Even liquid funds which are generally consistent are showing signs of flattening of late.

Is there any particular development I’m not aware of?

https://imgur.com/1KOZeu0

https://imgur.com/nQxdCnF

 

[wolfbird]

@mon4thelord Many debt funds are hit hard by repo rate reduction. Liquid and overnight funds are hardest hit by repo rate reduction. So naturally the returns graph flattens.

Gilt and sovereign funds have rallied in the last one year due to increase in yield which is inversely proportional to interest rate. Since the rate cut cycle has almost reached bottom, these might witness either flattening or fall in return if interest rate starts upward movement.

 

[mon4thelord]

@wolfbird BTW weirdly enough, even gilt funds have flattened.

https://imgur.com/KS0moWX

 

[lewisofthenorth]

@mon4thelord With inflation around 6%, they are not likely to cut interest rates soon. Hence, flat.

But I am bullish on Gilts in the longer term, I think interest rates will come down.

 

[mon4thelord]

@lewisofthenorth Even further? RIP FDs.

 

[phillipk]

@lewisofthenorth If inflation is at 6%< won't they try to cut rates to decrease money supply?

 

[betterdays]

@mon4thelord It's flattened last month or two, not before.

 

[mon4thelord]

@betterdays I'm talking about the last few months only throughout the thread. Mentioned it in the title as well.

 

[chianna]

@wolfbird Which debt funds do you think bis better for 6 months to 1 year duration?

 

[how2101]

@wolfbird

increase in yield which is inversely proportional to interest rate.

What type of yield are you considering? Current yields move with interest rates and inversely to bond prices.

 

[mon4thelord]

@wolfbird Makes sense. Thanks!

 

[bev1953]

@mon4thelord You might wanna check this thread out.

In short, liquid funds are now valued as per daily market rate like others, and not as per amortization method like done before.

Also RBI repo rates have decreased significantly during the past few months, so new bond's interest rates are quite low, hence the decrease in returns.

 

[mon4thelord]

@bev1953 Interesting. Thanks for helping.

 

[ginny16]

@mon4thelord The short duration funds are flat because the ytm is sub 3.5 on average. After you take out the expense ratio it can touch 3%

The long duration funds have more respectable yields that will be above 5.8% but because of the uncertainty over how much government borrowing will happen this year and the RBI not giving any clarity of future OMO or twists the yields are either stable or very slightly increasing so MTM they look flat.

 

[mon4thelord]

@ginny16 Oh that makes sense. Thanks!