What are the main factors that will influence debt returns in the days ahead?
Returns from debt funds will be influenced by overall interest rate scenario, which in turn is dependent on how global economy fares in next year. Some of the factors that should be watched out for would be oil price movements, domestic credit demand, FII flows to debt and equity markets and the government’s ability to manage fiscal deficit within prescribed levels. With the recent cancellation of auction, debt prices have moved up significantly in the past few days. This, therefore, may not be the best time to enter. However, if investors enter at 10-year yield of seven per cent or more, they can expect to generate positive returns. Such returns may be in the range of medium to higher single digits. Is there a case for mixing more equity with debt? Should investors allocate more to equities as a matter of principle? The extent to which an investor should allocate to debt as well as equity will depend on his or her risk appetite and return needs. This in turn will depend on which stage
