Why Income Funds Are Losing Out Flavour?

Around April of the ongoing year, after the government changed its borrowing plan from 60-65% on a general basis to just 47% in the first half of the financial year and also revised inflation forecast downwards, there was sharp fall in the10-year benchmark government yield. And correspondingly, annualized monthly yield from debt income funds scaled up.

Why Income Funds Are Losing Out Flavour?

Bond prices and interest rates share an inverse relationship which benefiited these funds during the time. As in April, the bond yield narrowed down by a margin to 7.2% from 7.7%.
But now, the scenario is quite the opposite. Here we will discuss all about Debt income funds.

What are debt income funds?

Debt income funds are fixed income instruments that primarily invest in long-term maturing instruments and these haven't fetched good reasonable returns for the investors over the past year.

Yield have again scaled high producing very menial returns from the category

In a year-to-date basis, the yield from income funds has been just around 2% which is very less in comparison to returns from other categories giving the rising interest rate regime.

Fixed deposits, NBFC deposits, bonds etc. are far more drawing the attention of investors in comparison due to better returns.

The other reason is sharp exodus of funds from the category which netted a withdrawal of Rs. 20,407 crore in the May month. The similar stance is seen in case of liquid funds and short term liquid funds which mirror the trend in the overall market in which the majority of the funds have been pulled by the main investor category that include financial institutions and corporate.

So, it is at best to follow up the scenario, if you have some position in these funds as the interest rate regime is set for a upward trajectory due to all probable macros such as surging inflation and investors hence need to look at better return fetching instruments such as FDs, corporate FDs, NCD issues etc.

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