India’s Mirae Asset to tactically buy more short-tenor debt on attractive rates

MUMBAI: Mirae Asset Investment Managers (India), one of the country’s largest mutual funds in terms of assets under management, is reducing the average duration of its debt investments across segments, citing attractive spreads at the shorter end of the yield curve, a senior fund manager said.

“Short-term and money market rates are very appealing considering the overnight cost of funding, and hence we want to tactically catch this spread in the near term, until it normalises,” said Basant Bafna, senior fund manager – fixed income at Mirae Asset.

The fund house manages debt assets worth around 300 billion rupees ($3.33 billion).

With three-month certificates of deposit (CDs) issued by Indian lenders yielding 6.05%-6.10% and one-year CDs at 6.61%-6.65%, investors are also finding three-month commercial papers (CPs) in the 6.50%-6.65% range appealing, while one-year CPs offer yields above 7%.

Meanwhile, the weighted average interbank call money rate has remained around 5.20% following the recent policy rate cut by the Reserve Bank of India (RBI), enhancing returns on such investments.

The fund house is selectively increasing allocations to money market funds as it expects parts of the yield curve up to three years to benefit in 2026 from “liquidity measures aimed at effective transmission,” Bafna said.

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Bafna said the fund house is also considering papers closer in maturity to the benchmark 10-year bond tactically, as most of the RBI’s open market operations focus on this segment, which includes maturities in the 8-12-year range.

“Exposure to longer duration carries a risk of a spike in yields as we anticipate heavy debt supply in the last quarter of the year, especially from states, with the risk of widening state and central government bond yields,” he added.

For state government debt, the fund manager prefers bonds with maturities up to five years, as limited supply in this category offers some protection against yield volatility.