'Interest rates will remain range-bound'

Fund Manager Speak/Dileep Madgavkar, CIO, Prudential ICICI

Prudential ICICI Income has a conservative approach to investing. The choice of securities invested in, apart from credit quality, depends on the relative liquidity of the papers, which is important from a mutual fund perspective.

Doesn't less allocation to risky papers mean lesser gains?
Part of the returns given by income funds over the past few years has arisen on account of capital gains due to falling yields rather than taking relatively higher credit risk calls.

Given that we expect interest rates remain range-bound going forward, we could look at some allocation to lower-credit papers of corporates with improving cash-flows.

Most of your portfolio consists of long-term maturity papers. What is the consideration behind maintaining a high average maturity?
The maturity of the corporate bond portfolio is relatively low. The higher average maturity arises mainly on account of government securities. This, once again, is dictated by the liquidity in the market.

In the current market, liquidity is mainly in the 10-15-year segment where our portfolio is concentrated. We currently have very little to no exposure in government papers above 15 years.

What is your view on interest rates going forward?
Interest rates will remain range-bound, though there could be a high degree of volatility. The extent of credit offtake, overseas flows and inflation expectations are key to interest rates.