In an exclusive conversation with Kshitij Anand, Abhishek Bisen, Head of Fixed Income at Kotak Mahindra AMC, shared his insights on the current debt market and why now could be a crucial time for long-term investors.
Highlighting India’s strong macroeconomic fundamentals, low inflation, and attractive bond yields, Bisen explained how locking in debt investments today could potentially translate into a substantial retirement corpus over the next decade. He also addressed common concerns around debt mutual fund volatility, explained the difference between FDs and debt funds, and offered a realistic perspective on long-term returns, emphasizing that strategic investments now could pay off significantly in the future. Edited ExcerptsThrough the currency markets, it can also impact equities and debt. However, given our fundamentals—for example, fairly benign inflation, reasonable GDP growth, a manageable current account deficit, and FX reserves of around $700 billion—we are fairly comfortable with our macroeconomic fundamentals.
Therefore, while the currency has depreciated relatively, it has not impacted fixed income. Given the sectoral impact of tariffs, equity markets have been affected, which is fair, but that is a limited impact.
In general, if the macroeconomic fundamentals were weak, it could have adversely impacted the markets. This time, however, given the strong fundamentals, our fixed income markets have not reacted negatively
These outflows typically relate to that strategy, where corporates plan their strategic or traditional outflows, largely attributable to taxes, which occur on a quarterly basis. So this activity is normal and not unusual.
Had the outflows been exceptionally large, then a deeper investigation would have been needed. But this is routine, recurring every quarter. Our ALMs are planned accordingly in short-term schemes, and the liquidity profile reflects this typical behavior from corporates.
An FD is a straight-line product where you get accruals over the term you invest. For example, if you invest in a five-year FD, you receive a straight-line accrual.
In a mutual fund, however, if you invest in a fund with a similar duration, there is market-related volatility. If you invest when yields are slightly higher or rising, near-term returns may be impacted, which creates uncertainty.
However, I want to share with viewers that any fixed-income product with a reasonable profile is likely to achieve its yield-to-maturity (YTM) toward maturity, similar to an FD.
If the YTM of the fund is higher than that of an FD, the likelihood of the mutual fund matching or beating FD returns is higher.
From this perspective, if you hold your investments in a debt mutual fund in line with its maturity profile, the chances of matching or even exceeding FD returns are fairly decent.
The key is to adjust your objective and understand the volatility that comes with duration. People often focus on past returns. If past returns are good, the future is already partly priced in, so the scope for higher returns may be limited