Given the growth numbers / corporate results in the recent quarter (Q2 FY 24-25), my anticipation is that interest rates would eventually have to come down in India, sooner or later , but they would have to. If latest inflation numbers which was at 14 month high delays the interest rate cut, in my view the delay would only increase probability of a eventual rate cut (because the increased rates would exacerbate the economic slowdown), so the rate cut might happen during the first half of 2025 or during second half but is very likely to happen (Although I realize that I am treading on thin ice here predicting the economic cycle !) So, the question is
a) Is it too late get into GILT funds ? Because the participants in the GILT market would obviously know this and would probably be sitting on much better information and therefore when interest cut actually happens, might that result in profit booking and prices going down instead of rising ? Hence the question
As you mentioned interest rate change is very hard to predict. It has been a while since we have been feeling interest rate cut are imminent, but RBI hasn’t obliged. Additionally market may still give a different yield for long term bonds - happened in the US for sometime in spite of rate cuts. These days I have been investing in PPFAS Dynamic Debt Allocation Fund. While it has some Equity exposure, fund manager decides the duration of the bonds that they invest in. Personally I prefer this approach than investing in GILT funds (I do have some allocation to GILT, which has given a decent 8.5% CAGR since 2019).
I did some bit of research on debt funds.
Methodology: Basically ranked different category of funds as per their returns over 10y,5y,3y and 1y period, shortlisted top 3 categories
Then ranked funds within the shortlisted category as per returns on 10y,5y,3y and 1y period and shortlisted top 3.
Then mostly looked at exit load and expense ratio (At this point it becomes a bit of personal choice).
Sharing the outcome here.
note that if you are in 30% income bracket, the taxation of gilt funds is at 30% (whether short term or long term)
SBI magnum gilt and ICICI gilt direct funds have credible history
when markets fell in 2020, and when rates were high, these gilt funds went up.
in hybrid funds, the equity+ arbitrage should be more than 65% inorder to qualify as equity fund (LTCG taxed at 12.5% above 1L gains)
Parag Parikh Dynamic Asset Allocation Fund is a debt fund (taxed at slab rates)
From 2 Dec 2019 to 2 Dec 2020, SBI Magnum Gilt fund gave a return of 12%
PPFAS Dynamic Asset Allocation fund is taxed at 12.5% LT Cap gain. The fund has higher allocation to equities through arbitrage portion. PPFAS Conservative Hybrid is taxed as debt fund.
Another advantage with GILT/Hybrid funds and FD from taxation perspective - For FDs, we have to pay tax while interest accrues, while for mutual funds, we pay tax when we sell.
My understanding is if the income from investment is accrued to a person whose overall income falls in a, say 15% tax bracket, the income from investment (debt) would also fall in that taxation bracket only.
