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Mar 03, 2009, 11.13 AM IST
Sujoy Kumar Das, Head - Fixed Income at Bharti Axa Investment Managers discusses the volatility in the fixed income market, rate cuts, inflation, debt investments v/s bank FDs, and RBI regulations. Read on for more.
Here is transcript of the exclusive chat with Sujoy Kumar Das
drpiya: What type of returns can I expect from debt funds over the next one year? Is it safe to invest now?
sujoy kumar das: The downward movement in the interest rates continued well into Jan'09. Currently the yields are moving up because of the extra borrowing programme announced by the GOI. It has deteriorated the market sentiment. However, over the next 1 year debt funds are in a position to post superior risk adjusted returns. (Check out - Performance of Long Term Debt Funds)
nandasethuraman: Do you expect further rate cuts by the RBI going forward?
sujoy kumar das: The aggressive borrowing programme of the GOI and benign inflation expectation over the next 3-6 months is going to create a big room for RBI to cut rates.
drpiya: What is your outlook for gilt funds?
sujoy kumar das: Gilt funds are exected to post superior risk adjusted returns in light of the softer interest rate stance of RBI. The credit conditions in the market are currently poor. Since gilts run negligible credit risk, this asset class is expected to perform during this scenario. (Check out - Performance of Short Term Debt Funds)
nak1209: The last few months have experienced tremendous volatility in the fixed income market? What are the reasons for this and when do you expect markets to stabilize?
sujoy kumar das: The fixed income market has turned volatile because of the supply pressure of GOI papers. This has hampered the sentiment of the market participants. However, the extra supply has not impacted the liquidity in the system. The OMO of RBI is expected to bring about some level of stability back into the market.
nandasethuraman: Will the recent regulatory changes restricting the maturity of papers bought in liquid funds affect their performance?
sujoy kumar das: No. Moreover, the funds will have a much lower interest rate duration and liquidity risk. (Check out - Performance of Liquid Funds)
mumbai.com: Do you think this spread between corporate debt and gilts justified? When do you think it will narrow and what do you think should be the gap?
sujoy kumar das: The corporate credit spread is currently justified. The credit spread can contract with the contraction in the solvency premium. This will be possible with superior balance sheet numbers.
akhila.n: Where should one invest ? Long Term vs Short Term Income Funds?
sujoy kumar das: The decision between long term and short term income funds depends on the investment horizon and risk appetite of the investor. Generally higher appetite for risk and longer investment horizon should get into long term income funds. They should look to stay invested for a period of 6 -12 months.
nandasethuraman: Can you please tell more about your Regular Returns Fund? Is an MIP kind of investment better than a fixed deposit kind of investments in today`s market?
sujoy kumar das: Regular Return Fund is the first fund in MIP genre in 6 years. The fund will invest 80-100% in Fixed Income Assets and can take a tactical Equity exposure of upto 20%. The fixed income assets will be in high credit quality instruments. The dividend from debt funds are more tax efficient. (Check out - Performance of Monthly Income Plans)
mumbai.com: What is your view on inflation? Where do you see it after 6 months and how would it impact interest rates?
sujoy kumar das: The WPI infaltion is expected to trend lower and remain benign over the next 6 months. It should affect interest rates positively as lower infaltion provides bigger room to RBI to cut rates.
nnnarayanan: Hi Mr. Sujoy.. how do you expect the debt market to react post Election?
sujoy kumar das: The debt market will draw clues from the fundamental attributes viz., liquidity conditions, RBI stance, inflation and credit growth.
rthalikar: Can you suggest reasons on why should investors invest in fixed income schemes vis-a-vis a Bank Fixed Deposit which currently gives a 9% to 10% yield/Annum
sujoy kumar das: The fixed income schemes get exposed to the market risks and are suited for investors with various levels of risk appetite. By embracing various degrees of market risks the schemes are in a position to deliver risk adjusted returns. The funds offer diversification across various asset class with liquidity, professional management, transparency and tax efficiency in a well regulated industry.
arunabsingh: would you recommend investing in equity as a retail investor or would debt instruments be a better bet?
sujoy kumar das: As a retail investor both the asset classes are an attractive option. However, the choice between the two depends on the individual investors risk appetite.
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