Tipping point: Why advisors are against betting on long-duration funds?

Long-duration funds have given a category average return of 9.74 per cent over the past year, which is quite attractive. This is because interest rates have softened over the past year. After touching a peak of 8.18 per cent in September last year, the G-Sec yield has come all the way down to 7.38 per cent now. This has benefited long-duration funds.

Nonetheless, most financial advisors will not advise you to invest in these funds. They carry the highest level of duration risk. When interest rates are rising, they could even give you negative returns. Most investors would not want this level of volatility in their fixed-income portfolios. Such volatility should only be tolerated in one’s equity portfolio, where the rewards are also commensurately high.