Long-duration government bond mutual funds in India have lost appeal among investors as rising sovereign yields reduce the return potential of holding debt with extended maturities.
India’s 10-year benchmark bond yield climbed to multi-week highs in May amid the West Asia conflict, global Treasury selloffs and concerns that the Reserve Bank of India may delay rate cuts or consider hikes to manage inflation and currency pressures. When yields rise, prices of existing long-maturity bonds fall, hurting fund returns.
Fund managers said investors have shifted toward shorter-duration products or waited on the sidelines rather than committing to long-dated gilt funds. Global bond markets have moved in tandem with oil price volatility linked to the U.S.-Iran war, amplifying the impact on Indian fixed-income portfolios.
Analysts noted that long-duration funds perform best when rate-cut cycles are underway and yields are falling. The current environment of elevated inflation forecasts and rupee weakness has inverted that outlook, making conservative duration positioning more popular among both institutional and retail debt investors.
Category average returns for long-duration gilt funds have come under pressure as the 10-year yield moved above 7 percent in May. Fund managers recommend shorter duration strategies when rate-cut expectations fade. Retail investors have shown preference for liquid and short-term debt categories amid uncertainty over the West Asia conflict’s fiscal impact.
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Sources:
https://www.business-standard.com/markets