Rising interest rates generally lead to poor returns for investors in longer duration debt funds. So in a rising interest rate scenario, it would be advisable to stick to shorter or medium duration funds (within the debt fund category), Dheeraj Singh, Head of Investments & Fund Manager – Fixed Income, Taurus Mutual Fund said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Overall MF flows seem stable but mutual fund flows into equity schemes (down 49 percent from life high) as well as balanced funds (nearly 97 percent from life high) slowed down drastically on monthly basis in July. Do you think the flows have peaked?
A: Flows in the recent past have possibly reacted to the market volatility witnessed in equity markets in the recent months, especially in shares of companies not included in the main benchmark indices.
Comparison of flows with what they were at life highs is probably an exercise in futility. Great for a headline, but meaningless otherwise.
Q: With interest rates on the rise, do you think debt funds will be a better option for investors?
A: Rising interest rates generally leads to poor returns for investors in longer duration debt funds. It would, therefore, be advisable that investors stick to shorter or medium duration funds (within the debt fund category) as long as they feel that interest rates are on the upswing.
Once the cycle of interest rate turns, they could consider investing in longer duration debt funds.
Q: The market reached new highs - the Nifty surpassed 11,400 levels and the Sensex marching towards 38,000. Is more steam left in the market or could it be rangebound for the next one year?
A: We would not like to comment on specific market index levels. However, in the medium to long run, we expect returns from the broader market to track nominal GDP growth.Q: What are the major reasons driving the market higher? Also, what are the key risks and concerns of the market domestically and globally?
A: Expectations of an improved corporate performance is the primary reason driving the market.
Key risks to consider are higher commodity prices, likely higher interest rates and other sector-specific impacts of the insolvency and bankruptcy resolution process etc.
Q: Midcap and smallcap also recovered from 2018 lows but are still down 9-12 percent in 2018? Do you expect it to turn positive or remain volatile in the next one year?
A: Small and mid-cap stocks are by nature volatile (means their prices can display sharp swings). Returns are therefore also likely to remain volatile (excellent in certain time periods and poor in others).