Notwithstanding tax law changes, debt funds will continue toremain relevant for investors vs alternative debt products for their researchdriven diversified portfolios, their superior market access and their breadthof solutions for varying needs. MFs can however now expect competition from PMSand AIFs in this space.
Debt funds unlikely to lose too much incremental space to hybrids:hybrids have created their own space especially for retail investors. Mosthybrids focus on equity risk management, don’t try to optimize debt risk-returntrade-off – and therefore may not be suitable for more sophisticated investorswith nuanced needs.
Our communication on debt funds became too polarized on taxadvantages and consequently funds became more passive. We need to change ouroutlook, our management and communication on debt funds to focus on alpha and breadthof solutions.
HNIs who will now look to stay invested for long periods todefer tax incidence will need new thinking on dynamic funds – perhaps there isspace to innovate in the intermediate duration category to deliver aptsolutions.
Markets have already rallied at the long end in anticipationof commencement of a rate cut cycle. When the cycle commences, opportunitieswill be more attractive at the shorter end as the curve steepens. Playingjudiciously between long and short ends dynamically can deliver healthyoutcomes for investors.