Home / Money / Personal Finance /  Debt funds are reducing maturity profile & increasing G-secs
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The average maturity of debt mutual funds has come down by 1-5 years now compared to the maturity profile of these funds two years ago.

This article takes a look at some of the portfolio characteristics of the debt fund categories. In April 2020, fund managers increased allocation to longer-term maturity papers, in expectation of further rate cuts . Now, as of April, debt funds have lowered the maturity profile to benefit from reinvesting as and when rates go up. There has been a portfolio shift towards low-risk instruments such as G-secs from corporate bonds.

Kaustubh Gupta, co-head of fixed income at Aditya Birla Sun Life AMC said, “Due to abundant systemic liquidity and anaemic credit growth, credit spreads (premium at which corporate bonds trade compared to G-secs) are much tighter today which makes the case for higher allocation to sovereign papers rather than corporate credits."


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While the average maturity of the funds is maintained at lower levels, our analysis pointed to higher portfolio allocation to instruments maturing in 3-5-years.

Amit Tripathi, CIO, fixed income investments, Nippon India Mutual Fund, said “The steepness of the curve between a 2-year bond and a 5-year bond was very high (indicating higher yield of the longer-term bond). The 4-5-year segment offered protection both in terms of relative higher carry (credit spread) and a moderate duration." Higher exposure to 3- to 5-year maturity bucket may result in higher volatility as interest rates go up. “As long as investors match their investment horizon with the portfolio maturity of the fund, they can lower the impact of volatility on redemption," said Joydeep Sen, an independent debt market analyst.

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