Indian mutual funds are increasingly tilting portfolios toward short-maturity instruments, steering clear of long-duration bonds as investors recalibrate risk amid changing rate expectations.
Key dynamics shaping this shift:
- 📉 Markets see the rate-cut cycle nearing completion, with possibly only one cut left
- 📈 Long-bond yields have already moved higher (5Y +18 bps, 10Y +13 bps since November)
- ⚖️ Concerns over elevated bond supply and fiscal pressures are weighing on longer tenors
As a result, flows are gravitating toward:
- Ultra-short funds (3–6 months)
- Low-duration funds (6–12 months)
- Money market schemes
These categories attracted ₹245 billion in inflows in November, while longer-duration and liquid funds saw sizable outflows.
From a portfolio-construction standpoint, this makes sense:
- Short-end offers attractive carry with limited duration risk
- Volatility protection is prioritized as yields reprice
- Fund managers are actively reducing modified duration ahead of fiscal-year-end issuance
The message from the market is clear:
📌 Capital is being parked where visibility is highest and downside is contained.
For investors, the coming months will likely remain about capital preservation, carry optimisation, and tactical flexibility, rather than duration bets.