"Despite some volatility in the short term it is expected that in the medium term, we continue to believe that domestic interest rates are at or near peak, and investors seek to invest 1-3 years in space is a short-term or regular saving, because they provide significant risk-adjusted returns, "said ICICI Pru Mutual Fund head of fixed income investments Chaitanya Pande, who controls assets worth about Rs 63 000 crore.

The long-term securities remain a problem for managers of fixed income, due to high budget deficit and fears that inflation will take some time for the facility. "The budget deficit remains a problem until more clarity on what comes from the government is capable of achieving. And not only this year, next year, there is a budget deficit problem. If growth continues to slow year next, the divestment will not be easy. So long-term yields would remain under pressure, "said Pande.

In the past year, the house of increased exposure to funds certificates of deposit issued by banks, debt securities in the public sector, businesses and non-banking financial companies (NBFC). However, it has been reluctant to invest in retail, non-convertible debentures by NBFC. Recently, the NBFC and Shriram Transport Finance IIFL MNT issued with a coupon rate of 11-12%.

"The limit for institutional investors is very low. There are only 10-15% reserved for QIB. Then he opened last week, had. `70 crore for institutional investors, and there are 46 mutual funds. So it makes little sense because there is a participation of financial institutions, there will be no trade. These MNT is less than par and our borders are linked to their equilibrium size and debt to equity. "

Pande said the fund managers of India also closely monitor the evolution of U.S. Treasury bonds, once considered the safest security and its impact on global markets after the world's largest economy has lost its AAA rating agency Standard & Poor.

"As demand for U.S. Treasuries can not significantly decreased due to degradation, monitoring the effects on world markets should be seen as the reduction came after the markets closed for the weekend" said Pande. "The downgrade could affect the total liquidation of the securities, as most of the clearing houses that are based in the United States are currently rated AAA, so your score may be affected. Similarly, the issuer may fall into the effect of other people by the sovereign rating of the United States. In addition, the U.S. dollar as a funding currency significant side effects in risky assets could be harmful in the short term, "he said.

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The Reserve Bank of India’s (RBI) directive to banks to reduce exposure to liquid systems, Pande said the investment banks in these plans has been reduced to Rs 60.000 to 65.000 billion rupees, which is just above R 10000-15000 crore central bank's mandate.

"For mutual funds, it is not really a problem. But banks are a good source of liquidity has disappeared. Of course, it is to some extent has allocated substantial funds unless, due to the size and scope. Typically, you can see that, in turn, exceeds the shallows more funds. So a lot of the allocation of funds used to go to smaller funds, "he said.

Source: [ET]