Build debt fund portfolio diversified across duration, watch volatility

Take limited exposure to longer-duration debt funds; match horizon with fund's portfolio duration

Debt mutual funds turned in a strong performance in 2024, with longer-duration funds leading the way. While rate cuts may begin in 2025, the cycle is likely to be a truncated one. Experts, therefore, suggest not going overboard on longer-duration funds. Instead, they suggest building a diversified portfolio and selecting debt fund categories based on the investment horizon.

 

Drivers of performance in 2024

 

Both dropping bond yields and high accruals contributed to performance. “The yield of the 10-year benchmark government security (G-Sec) dropped from 7.35 per cent to 6.78 per cent, creating market gains. In addition, reasonable accrual levels also