The debt market, often referred to as the bond or credit market, is a financial platform for the issuance and trading of debt securities.
Desai highlights three key reasons why 2025 is likely to continue this trend:
Attractive Yields: AAA bond yields are currently trading between 7-8%, indicating high potential returns.
Anticipated Interest Rate Cuts: Although the Reserve Bank of India (RBI) has not yet started cutting interest rates due to persistent inflation, a cooling of inflation could prompt rate cuts by mid-to-late 2025.
Global and Domestic Demand: With India’s inclusion in the JPMorgan Emerging Bond Index in 2024 and the Bloomberg Emerging Bond Index from January 2025, substantial inflows into Indian government securities (G-Secs) and corporate bonds are expected from both domestic and international investors.
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While the debt market is poised for growth, Udayan Adhye, Founder of Udayan On Money, emphasises the importance of managing risks alongside exploring opportunities.
He advises investors to:
Focus on High Credit Quality: Stick to AAA-rated and sovereign debt funds to minimize risks. Desai advises avoiding credit risk investments that chase higher yields.
Align Investment Horizon with Product Maturity: Mismatched horizons can lead to issues. For instance, investing in long-duration products with a short-term horizon may create challenges.
Adhye recommends dynamic bond funds as a versatile choice for debt investors. These funds allow the fund manager to adjust the portfolio’s duration, investing in a mix of short, medium, and long-term bonds.
However, he cautions that the success of this strategy depends on the expertise of the fund manager.
Adhye highlights the importance of focusing on established, well-managed, and long-standing fund houses with high assets under management (AUM). He cites the ICICI Prudential All Seasons Bond Fund and the Kotak Dynamic Bond Fund as fitting these criteria.
For full interview, watch accompanying video
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(Edited by : Anshul)
First Published: Jan 2, 2025 4:11 PM IST
