The prices of bonds and related debt instruments have been falling over the past week. Experts feel this presents an excellent opportunity for retail investors to add these instruments to their portfolios.
“Investors will benefit if they were to invest into this asset class,” said Shankar Raman, head, investment products and advisory services, Centrum Wealth Management.
"Investments in debt funds now can give handsome returns going forward," added Ankit Swaika, senior vice president, Religare Macquarie Wealth Management.
“The recent fall in prices has been due to various measures by RBI to combat the fall of the rupee, as well as general global economic scenarios. Emerging Market (EM) assets have got re-priced over the last month due to concerns over the eventual withdrawal of monetary support by the Fed,” said a Franklin Templeton Mutual Fund report.
This however presents a window of opportunity for investor to enter this asset class.
"I think that investors should look at adding (more) debt instruments," said Raman.
But this window of opportunity will be limited. "Our expectation is that yields in government securities will go down from current levels," said Raman. The benchmark 10-year government securities offer 7.93% yield. Higher yields signify higher risks and, therefore, result in lower prices and vice versa.
The volatility in debt funds and prices should last for the next two months as the RBI retains its focus on stabilising the rupee.
But Swaika expects RBI to go into a growth boosting phase in mid-September, so volatility will continue in this period.
Besides RBI policy, the behaviour of the rupee and liquidity in the system will also affect bond yields and prices.
There are two kinds of debt funds - accrual (or passive) funds and actively managed funds. Swaika noted that accrual funds are offering yields of up to 11 per cent.
One year bank deposits stands at 9-9.5%.