Credit risk

‘Now is a good time to get into credit risk funds’: ICICI Prudential MF’s Manish Banthia

Manish Banthia, Senior Fixed Income Fund Manager, ICICI Mutual Fund, said fixed income funds have been through a dull period, but the bright phase is coming now. He was talking about how to position mutual funds at Cafe Mutual Confluence in Mumbai. Banthia said understanding the interest rate cycle can help investors better position their debt portfolio.

He also said now was the best time to get back to credit risk funds. Banthia said that in a rising interest rate cycle, we need to focus on earning earnings by adding higher spread assets.

“The best place to be in debt right now is low to medium duration. YTM yields on the 5-year SDL and PSU rose 202 bps with interest rates rising 190 bps from from September 30, 2021 to September 30, 2022, the YTM of the ICICI Prudential Ultra short-term fund fell from 4.61% to 6.92% In the ICICI Prudential fund Credit Risk Fund, YTM fell from 6.81% to 8.84% over the same period, YTM movement was larger in AA logs, so I think credit risk funds are back and it is the right time to enter these funds,” said Manish Banthia.



Banthia also said the economy is currently entering an expansion phase. Which means we’re almost at the end of interest rate hikes. He said that in the next 6 months to a year, rates will begin to stabilize and the expansion phase will begin. He said debt portfolios can benefit from an actively managed fund at this stage. He said risk-averse investors can stay in short-term funds. He said dynamic bond funds can also work for those who can handle a bit of volatility.

“In this phase, the yield curve is flat. The period of rising interest rates continues and short duration funds and floating rate funds are the best bet. When this phase is over, the active management of duration will come to the fore, so dynamic bond funds After that will come a phase where interest rates are lowered, at which point high duration funds and passive long duration will be the best bets. Then will come the break interest rates, this time again active duration management will be back,” Manish Banthia said.