2022 was a power packed year for Fixed Income Markets. Till March 2021 most of the central banks maintained excess liquidity and used the word “Transitory” for inflation concerns. After a prolonged period of high liquidity and rate cuts during the pandemic period, the cycle for Fixed Income (Interest rates) turned in 2022.
In May 2022 the Reserve Bank OF India started hiking rates aggressively in line with global interest rate hikes. Excess liquidity which was around 8 lakh crores during the start of financial year, reduced to almost zero or marginally positive by year end (December 22). As a result, the yield on 10-year sovereign paper inched up from 6.90% in April 2022 to 7.60% in June 2022. (When yields move upwards, prices of bonds decline leading to mark to market losses). As a result, investors in long-term debt funds were badly hit.
As we come towards the end of 2022, we feel the yields have peaked. Most of the negatives have been factored in the current prices. Crude prices have declined, inflation is declining on domestic and global front, huge borrowing program has sailed through (state govt plus central govt), rupee is stabilizing and most important a carry of 7% plus is very attractive. All these factors are positive for the fixed income market.
Saving and investing is all about creating good habits and keeping an eye on long-term goals and short term emergencies. Investing is all about asset allocation (Equity/Fixed Income/Gold etc). Financial security doesn’t happen accidentally. It has to be planned carefully considering one’s own resources. Initially it could put pressure on lifestyle but over a period it is manageable. It is very much essential to opt for long term fixed Income investment while building retirement corpus with tax efficiency and lock in. Fixed Income products bring discipline to investment habit. Today around 170 lakh crores money is in bank FDs (source: CRISIL Report). This money may gradually be transferred to Fixed Income schemes of mutual funds because of transparency (fortnightly portfolio disclosure), tax efficiency (indexation benefit after three years) and liquidity
In the New year starting 2023 you may start a SIP for the next six months to one year in Medium to Long Duration Funds, Long Duration Funds, Banking & PSU Funds and Low Duration Funds depending on risk appetite and build a corpus.
Disclaimer: The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information / data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risk and uncertainties that could cause actual results, performance, or event to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in the future. LIC Mutual Fund Asset Management Ltd. / LIC Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investment made in the scheme(s). Neither LIC Mutual Fund Asset Management Ltd. and LIC Mutual Fund (the fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipients before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
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