The markets have been range bound since a long time, though the volatility has been low. In the near future too, we foresee the markets to remain in a range owing to an intense selling on every rally and heavy buying on every decline. This tussle between the bulls and beers is leading to narrowing of the range. In this scenario it is useful to look at alternate avenues for investment. With the ten year GOI bond yield hovering around 8%, it may be useful to look at gilt or income funds holding securities with a long period to maturity. Income funds are the most common form of debt investments, suitable for investors with a medium to long term investment horizon, suitable for investors and moderate risk appetite. Since, the markets are a bit volatile, it becomes quite sensible to hedge a part of one’s portfolio by entering into income funds.
Analysing historical patterns usually the GOI yield does not stay above 8% for a very long period of time. Whenever the bond yields start falling, their prices will start shooting up and returns on these gilt and income funds will be striking. Even if it takes time for yields to start falling, downside risk on Income Funds from these levels are limited. On the other hand despite a positive sentiment on the bourses equity markets have more downside risk.
Therefore we advise investors to partially book profits on equity investments and start building their income funds portfolio.
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