A decline in bond prices (rising yields) leads to mark-to-market losses in debt schemes, especially those investing in longer-duration securities. Liquid funds invest in bonds with shorter maturity and tend to be the least affected in such a scenario.
“Investors should invest in liquid funds now,” said Amit Bivalkar, CEO, Sapient Wealth Management. “In the next 2-6 months, they will get an opportunity to lock into longer-tenure products at higher yields.”
Bond yields rose by 15-20 basis points with the 10-year benchmark touching 6.88% on Tuesday after the budget. Fund managers expect yields to advance further.
“With the fiscal deficit higher for next year at 6.4%, it has led to a spike in bond yields,” said Mahendra Jajoo, CIO – fixed income, Mirae Asset Management. “Near-term yields could touch the 7%-mark. Investors should stay in liquid funds.”
Liquid funds have returned 3.24% in the past year, according to data from Value Research.
