Fund managers may shift attention towards accrual funds for higher yields

According to experts, the yield curve has steepened quite a bit, implying that the market is already discounting future rate hikes

Fund managers may gradually shift their attention towards accrual funds in search of higher yields, even as investors continue to favour shorter-term debt funds. 

Accrual funds invest in companies having a lower credit rating, often with expectations of an improvement in their rating. Experts believe a compression theme is evident in select AA names as initial fears of downgrades and defaults recede, and portfolios may selectively look to capture opportunities in the space.

“We believe opportunities in the AA space make for an attractive play for investors with risk appetite. However, investors must remain vigilant and focus on portfolio granularity and liquidity,