In an interaction with Avnish Jain, Head – Fixed Income, Canara Robeco Mutual Fund

“Rather than be swayed by short-term market noise, investors should focus on asset allocation of their investment portfolios depending on their goals, risk appetite and investment horizon”, voices Avnish Jain, Head – Fixed Income, Canara Robeco Mutual Fund

What are the biggest risks and opportunities you anticipate in fixed-income investing in 2025?
2025 has been a volatile year so far, considering the tariff war initiated by the United States administration. While the US has postponed impending tariffs, the US-China tariff war continues and it could likely have a far-reaching impact on global trade and world growth. US growth is likely to be affected as well and market participants are already voicing higher recession risks in the US. Asian exporters, especially Vietnam and Thailand, who have large exposure to US markets, are likely to be hit hard by the tariffs.

Lower growth is likely to be positive for fixed income markets and markets are expecting the US FED to reduce rates to counter any recession threats. Oil prices have also dropped on the back of tariff impact as well as news of OPEC countries hinting at increased production. This is likely to be positive for Indian fixed income markets, as India is a large importer of oil, and lower prices are likely to reduce inflation, fiscal deficit and support the Indian currency. Risks remain on the geopolitical front as well as further fallout from the tariff war. Higher tariffs worldwide may lead to inflationary pressure in some countries, which could be risky for fixed income markets.

With the recent RBI rate cut, how should investors adjust their debt portfolios to optimize returns?
The RBI has reduced rates again in its April policy, whilst shifting stance to accommodative, indicating that further rate cuts are possible. This is likely positive for debt markets; however, investors are advised to follow an asset allocation approach for their respective investment portfolios for longer-term wealth creation via exposure to equity, debt, commodities etc. In terms of exposure to Debt Funds, there are various category options for investors like Money Market funds, Short Duration funds, Corporate Bond funds, and Duration funds depending on the risk profile of the investor as well as investment horizon. Markets discount rate cuts well in advance and hence adjusting debt exposures just before an expected monetary policy action, may not be optimal. Rather than be swayed by short-term market noise, investors should focus on asset allocation of their investment portfolios depending on their goals, risk appetite and investment horizon.

For retail investors looking at fixed income, how should they navigate the current market—short duration vs. long duration, corporate bonds vs. government securities?
Mutual fund debt products provide various category options to investors like Short Duration funds, Corporate Bond funds, Income funds and Gilt funds. Except for Gilt funds, all other funds have options to invest both in corporate bonds and government securities. If an investor wants to avoid credit risk, then a Gilt fund may be the right choice. Other funds provide options of low and high duration and corporate bond exposure. The proportion of corporate bonds and government securities is managed by the fund manager depending on various factors like demand and supply of each asset class, spread analysis, market sentiment and macro-economic factors like inflation and growth expectations. Depending on the risk appetite of the investor and investment horizon, an investor may choose from various debt products that are available.

 
With growing investor interest in green bonds and ESG-focused debt instruments, how do you see this segment evolving in India?
The ESG market is in a nascent stage in India. The central government started issuing green government securities a few years back, but demand remains lacklustre. The Indian debt market is an evolving market. As the debt market evolves more and investors become more discerning, we should see ESG debt investment becoming part of investor portfolios.

Do you see a shift in investor preference from traditional fixed-income products like FDs and G-Secs to newer options such as target maturity funds, corporate bond funds, or debt ETFs?
There are many fixed income products available to investors to choose from which may vary on returns, convenience of investment, liquidity and risk. Debt funds offer products having varying risk profiles derived from the amount of interest rate and credit risk taken by any particular debt fund. Debt funds provide options to both conservative as well as aggressive investors. Debt funds offer ease of investment and liquidity to investors. As investors become more discerning, we expect increased allocation to market-related products like debt funds.