average maturity of debt mutual fund The maturity profile of these funds is now reduced by 1-5 years as compared to two years back.
This article takes a look at some portfolio features debt fund Categories. In April 2020, fund managers increased the allocation for longer maturity papers, in anticipation of further rate cuts. Now, as of April, debt funds have reduced maturity profile to benefit from reinvestment as and when rates rise. There has been a portfolio shift from corporate bonds to low-risk instruments like G-Secs.
Kaustubh Gupta, Co-Head of Fixed Income at Aditya Birla Sun Life AMC, said, “Due to abundant systemic liquidity and anemic credit growth, credit spreads (the premium at which corporate bonds trade compared to Government-Sec) have increased today. Very strict which makes case for higher allocation for sovereign papers instead of corporate credit.”
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While the average maturity of the fund remains at lower levels, our analysis pointed to higher portfolio allocation for instruments maturing in 3-5 years.
Amit Tripathi, CIO, Fixed Income Investments, Nippon India Mutual Fund said, “The steepness of the curve between 2-year bonds and 5-year bonds was very high (indicating higher yields of longer-term bonds). The segment offered protection in terms of both relative high carry (credit spreads) and medium term. Higher exposure to maturity buckets of 3 to 5 years could result in higher volatility when interest rates rise.” Combining their investment horizon with the portfolio maturity of the fund, they can reduce the impact of volatility on redemptions,” said Joydeep Sen, an independent debt market analyst.