Accrual funds better bet for investors post RBI rate cut

Yields on the benchmark 10-year govt bonds have slid to 6.44%

With the Reserve Bank of India (RBI) opting for a 25 basis point rate cut last week, debt fund managers are advising investors to move from duration to accrual funds.

Duration funds make money out of predicting interest rate movements. The higher the duration, the more money the fund will make when interest rates fall. 

Accrual funds invest in companies with a lower credit rating, often with an expectation that ratings will improve. 

“As we come to the end of the rate cycle, investors should look to increase the yield on the portfolio rather than look at long-duration opportunities. We see value