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An ideal debt mutual fund portfolio mix for investors post RBI Monetary Policy
1 min read.Updated: 05 Dec 2020, 06:46 AM ISTAvneet Kaur
As widely expected, RBI maintained status quo on interest rates in its Monetary Policy on December 4, and extended its commitment to maintain an accommodative monetary policy for this financial year and into the next fiscal.
As widely expected, RBI maintained status quo on interest rates in its Monetary Policy on December 4, and extended its commitment to maintain an accommodative monetary policy for this financial year and into the next fiscal, to support economic growth which has been severely impacted by Covid-19. The committee raised its growth and inflation expectations, in a clear indication that it won’t change its benchmark interest rate soon.
The panel, which cut rates by 115 basis points since the covid-19 outbreak in March, has kept rates on hold since May.
For debt fund investors, no significant change atleast in the near term. "Given the significant levels of surplus liquidity in the system, interest rates / yields on instruments with maturities of below one year are quite low (3% to 3.5%), whereas yields in the 3 to 5 year and 5 year plus maturity segments are relatively higher. Further credit spreads on AAA rated debt instruments vis-à-vis government securities have narrowed sharply over the last few months, due to the ‘flight to safety’ post the Franklin Templeton issue. On the other hand, spreads on AA and below rated instruments have remained relatively wide," explains Dhaval Kapadia, Director – Portfolio Specialist, Morningstar Investment Adviser India.
Dhaval Kapadia shares a debt fund portfolio mix for investors post the RBI's MPC . According to him, a debt portfolio could be allocated in the following manner: "liquid / ultra short term categories can be minimal at around 5% to 10%, short term (including Banking & PSU, Corporate bond funds) at 25% to 35%; moderate credit risk funds at 8% to 13%; medium to long duration funds (with AAA & AA rated /gilt exposure) – 17% to 25% and long duration funds (gilt) – 12% to 17%."