Short-term debt funds recover from RBI shock

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Over the last month, debt markets have been volatile due to the liquidity tightening measures announced by the Reserve Bank of India. As a result, yields on government securities shot up, which means the prices fell sharply. Due to this, the net asset values of debt mutual funds saw a decline. For instance, categories like gilt medium- and long-term funds and income funds have been hit the most. However, some categories like gilt short-term, ultra short-term and liquid funds have recovered since then.

According to Sujoy Das, head of fixed income, Religare Invesco, investors should look at shorter term funds of six months to one year. But those invested in long-term funds should stay invested because the losses are marked-to-market losses and not capital losses.