Buying shorter debt is now a hot trade in India's bond market

Short-term debt funds in India are attracting big inflows amid uncertainties over the central bank’s future policy stance.
 

Funds maturing in up to six months, including liquid and ultra-short duration funds, got the highest inflows in three months in July, swelling the total debt inflows to Rs 73,700 crore ($10 billion), according to the Association of Mutual Funds in India.

Rising inflation is constraining the central bank from easing further even as the economy remains vulnerable following a deadly wave of coronavirus infections. The Reserve Bank of India last week left its key rate unchanged but one policy member dissented over maintaining an accommodative stance for longer.

“On a risk-adjusted basis, most investors are moving to the shorter end, and want to just play safe,” said Arun Kumar, head of research at FundsIndia. The consensus among investors is that interest rates are going to go up in the next one-to-two years, “and whenever that happens, the longer the duration of fund, the higher the negative impact.”

Short-term debt funds in India are attracting big inflows amid uncertainties over the central bank’s future policy stance.

Funds maturing in up to six months, including liquid and ultra-short duration funds, got the highest inflows in three months in July, swelling the total debt inflows to Rs 73,700 crore ($10 billion), according to the Association of Mutual Funds in India.

Rising inflation is constraining the central bank from easing further even as the economy remains vulnerable following a deadly wave of coronavirus infections. The Reserve Bank of India last week left its key rate unchanged but one policy member dissented over maintaining an accommodative stance for longer.

“On a risk-adjusted basis, most investors are moving to the shorter end, and want to just play safe,” said Arun Kumar, head of research at FundsIndia. The consensus among investors is that interest rates are going to go up in the next one-to-two years, “and whenever that happens, the longer the duration of fund, the higher the negative impact.”