When bond yields fall, prices rise, and vice versa. Long-term bond funds benefit the most from declining bond yields. Investors could consider putting money into long-duration debt and long-term Gilt schemes, which could earn 10-12% returns in the year ahead
“Investors could gradually add duration in their portfolios, to benefit from rate cuts,” said Dhawal Dalal, chief investment officer – fixed income at Edelweiss Mutual Fund. “We expect policy rates to come down by 50 basis points, in the second-half of the financial year after considering factors like inflation, monsoon, and how the Fed behaves.”
The lower-than-expected net borrowing at Rs 11.75 lakh crore creates a positive background for the fixed income segment and will exert downward pressure on bond yields, said Deepak Sood, head – fixed income, Alpha Alternatives.“That along with the anticipated (JP Morgan) index inclusion demand from foreign investors, are poised to drive interest rates even lower,” said Sood.Following the budget, the yield on 10-year government benchmark dropped to 7.06% on Thursday as against 7.14% the previous day. A cut of 50 basis points could help investors earn a 3-4% appreciation on long-duration funds that have an average maturity of around 10 years, over the next year.”The steps to keep inflation under check could provide enough headroom for the RBI to cut interest rates, which will help long-term bonds in 2024, “said Pankaj Pathak, head of fixed income at Quantum Mutual Fund.
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