Debt, Loan, Banks. Photo: iStock
The benchmark 10-year government bond yield has breached the 8 per cent mark and is currently trading at 8.05 per cent. A year earlier it stood at 6.47 per cent. This hardening of yield has led to all categories of longer-term debt funds underperforming over the past year. Shorter-duration funds have been the flavour of the season.
Most investors should currently stick to these funds. However, one should also remember that interest rates tend to be cyclical. Experts say that those with the appropriate risk appetite and a horizon of at least two years may take a contrarian (10-20 per cent or so) exposure to a medium-term bond fund to benefit from the eventual turnaround in bond yields.