Rs 50L in debt funds: Should I lock in long-term yields now or stick to short duration given the global tensions?

Stick to a short-duration accrual strategy in the 1-2yr segment right now to earn stable returns without taking on unnecessary interest rate risk.

When geopolitical tensions flare up, the biggest wildcard for India is always crude oil. We recently saw Brent crude shoot up from under $60 to momentarily touching $115 per barrel. Since we import about 80% of our oil, sustained high prices near $100 could push our inflation above 5% and widen the current account deficit.

The market's base case is that things will settle down and crude will fall back below $70. Because of this base assumption, the RBI has been highly proactive, managing liquidity and keeping 10yr bond yields remarkably stable around 6.6% to 6.7%. However, if the conflict drags on, markets will start pricing in rate hikes, which could push yields up by 25 to 50 basis points and cause a sell-off in long-term bonds.

That is why locking into long-term bonds right now carries hidden risks. Instead, the smartest move for your Rs 50L is to build an accrual-based portfolio focused on the short end of the yield curve.

Parking your funds in the 1-2yr segment gives you a strong, steady carry while protecting your capital from sudden yield spikes. You can always keep a small portion ready for tactical opportunities in gilt funds if long-term yields do eventually spike and offer a better entry point.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.