Debt fund YTMs stabilize but still top a few basis points, report says

The yield to maturity (YTM) of debt mutual fund (MF) schemes – an indication of future returns – has stabilized over the past two months after a sharp rise between July and September 2022, a report by Trade standard said, citing data from Value Research.

According to the report, fund managers and advisors believe that although YTMs have stabilized, their peak is still a few basis points away, especially for funds that have a longer horizon.

“YTMs have been up for some categories over the past two months while flat for others. They may still go up but not by much,” said Parijat Agrawal, Head of Fixed Income, Union Asset Management Company.

At the end of November, the YTMs of all categories of debt funds, except credit risk funds and overnight funds, were in a narrow range of 6.3% to 7.3%. , notes the report.

Given expectations of further rise in YTMs, fund managers, investment advisers and distributors at MF are advising investors to stick to funds with shorter horizons, according to the BS report. According to them, investments in longer-term funds like gilt can be suspended for a few more months, he added.

“So far, no fund with high quality papers has reached an 8% YTM. I am confident that this will happen in the next two quarters. Therefore, I recommend to my investors to wait a few more months before investing in medium to long duration funds,” said Rushabh Desai, founder of Rupee With Rushabh Investment Services.

Three schemes combined – corporate bond funds, bank funds and PSU funds, and gilt funds – recorded a net outflow of ₹73,400 crores in the first nine months of 2022, due to poor performance over the past year and the rate hike cycle, according to the report.

Loan funds are still struggling to stem outflows, even though YTMs have reached good levels and the rate hike is about to end, he pointed out. In October, investors withdrew a trickle of ₹2,900 crore from these three funds and made a net investment of ₹1,800 crores in November, the report added.