Bond fund managers continue to exhibit wide variance in duration positioning, with gilt funds showing significant divergence in maturity strategies. According to reports from Business Standard, Bandhan Gilt Fund maintains the most aggressive stance with an average maturity of 32.2 years in May, followed by ICICI Prudential Gilt Fund at 21.6 years, Nippon India Gilt Fund at 21.3 years, and HDFC Gilt Fund at 21.2 years. At the conservative end, SBI Gilt Fund maintains a relatively defensive posture with an average maturity of 10.1 years, while Kotak Gilt Fund stands at 13.1 years.
The dynamic bond category shows similar divergence patterns, with Bandhan Dynamic Bond Fund raising its average maturity sharply to 21.3 years in May from just over two years at the start of the year. As reported by Business Standard, HDFC Dynamic Bond Fund remains positioned at the longer end with an average maturity of 19.7 years, while Nippon India Dynamic Bond Fund maintains a much shorter maturity profile at 4.1 years. SBI Dynamic Bond Fund remains relatively cautious at 5.4 years.
Despite varying strategies, most large schemes moved in the same direction during May, extending portfolio maturity ahead of the Reserve Bank of India (RBI) policy review and foreign portfolio investor (FPI) tax changes. According to Business Standard, the average maturity across six large gilt funds rose to 19.9 years in May from 17.3 years in April, with four of the six schemes increasing portfolio maturity during the month. Among the six large dynamic bond funds, the average maturity increased to 12.8 years from 10.8 years, with five schemes extending duration.
The RBI and government measures announced on June 5, along with the US-Iran truce, have eased some headwinds faced by longer-duration bonds. As reported by Business Standard, bond yields have softened across the curve over the past two weeks, with longer-dated securities benefiting the most. HDFC MF noted in its June factsheet that the RBI's steps to attract capital flows should ease pressure on the currency and address multiple concerns including improving capital flows, stabilising the currency, and moderating credit-deposit ratios for banks.
Despite recent improvements, most fund managers continue to prefer shorter-duration papers over longer-dated securities. According to SBI MF in its latest monthly outlook as reported by Business Standard, until there is greater clarity on the inflation trajectory, shorter-duration strategies may offer a more prudent way to navigate the evolving macro landscape. This conservative approach reflects ongoing uncertainty about future interest rate movements and economic conditions.
