November sees debt scheme outflows, but experts say it's a good time to invest for the long term

Himanshu Srivastava, Associate Director, Manager Research at Morningstar, shed light on this downturn, attributing the subdued performance to the revised tax laws and the ambiguity surrounding interest rates.

"Investors find themselves in a conundrum, grappling with uncertainty amid fluctuating interest rates while witnessing the resolute performance of equity markets, which has steadily diverted their attention," he said.

Gopal Kavalireddi, Vice President of Research at FYERS, echoed similar sentiments, emphasising that basket selling in debt category schemes led to net outflows.

However, experts felt that this is a good time to invest in long-term debt funds. Mukesh Kochar, National Head of Wealth at AUM Capital, aligned this with market expectations and highlighted the Reserve Bank of India (RBI) MPC's decision to retain both interest rates and its policy stance without alterations.

"While inflation projections remain steady, concerns persist over near-term food inflation. However, the Reserve Bank finds some solace in crude oil's impact on inflation, maintaining core inflation at a comfortable level. Furthermore, there's a global downtrend in inflation, indicating a possible upward trajectory for rates in the near future," he said.

Anticipating a forthcoming interest rate cut by the US Federal Reserve around the middle of 2024, alongside impending flows in JP Morgan's bond index funds, Kochar predicted a potential decrease in G-Sec yields by 50-75 basis points.

From a 1-2 year perspective, he remains optimistic about long-term debt funds, foreseeing a positive outlook amidst these evolving global economic factors.

In an earlier conversation, Sandeep Yadav, Head of Fixed Income at DSP Mutual Fund, also underscored the cyclical nature of debt funds due to the ongoing interest rate cycles.

Highlighting that yields are currently at multi-year highs, he said this is an opportune moment for investors. As yields decrease, according to him, debt funds become more appealing.