Axis Mutual Fund's Devang Shah Advises Gradual Investment in Fixed Income

Market Fears Over RBI Action May Be Overestimated, Says Axis Mutual Fund Head

Mounting concerns over policy tightening, a weak rupee, and rising oil prices have investors questioning if the Reserve Bank of India (RBI) will deploy aggressive measures to support growth. However, Devang Shah, head of fixed income at Axis Mutual Fund, believes that markets may be overestimating the risk of sharp RBI action.

In an interview, Shah explained that the RBI's response to earlier episodes of policy tightening, such as the taper tantrum and MSF hike of 300 bps in 2013, was more aggressive because the focus was on stopping currency depreciation. This time, the situation is not critical enough to warrant immediate action by the RBI, according to Shah. He expects the RBI to remain measured, with a cautious pause or small rate increases instead of sharp hikes. Alongside rates, the central bank may announce measures to attract dollar inflows and support the rupee rather than relying only on monetary tightening.

Fixed income has become attractive now because yields across categories have improved. For the last six months, Shah advised investors to keep duration lower and focus on accrual strategies. However, with the approach slowly changing, investors can begin adding exposure to longer-duration funds but not all at once. Building positions gradually over the next three to four months is recommended due to uncertainty around oil prices, geopolitics, and fiscal pressures.

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For investors who are not focused heavily on taxes and want a simple approach, Shah suggests allocating a majority to money market funds, some to corporate debt, and only a small allocation to long-duration funds. Over the next three to six months, if conditions become clearer, that mix can gradually shift with more exposure moving towards long-duration and corporate debt funds and lower allocation to money market instruments.

Long-duration funds perform through interest-rate cycles, and right now, exposure should remain tactical because markets are still dealing with expected rate hikes. However, once the first hike happens and expectations are priced in, long-duration exposure can become more structural. These funds usually perform in anticipation of future rate cuts even if actual cuts come later.

Tax changes in debt funds have not changed how fund managers build portfolios, according to Shah. Portfolio construction in fixed income remains driven by macro conditions rather than investor behavior. However, fixed-income cycles have become shorter and more linked to global developments, requiring fund managers to adjust their duration and accrual strategies in response to changing macro signals.

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Retail investors do not need to track every macro event or interest-rate forecast, says Shah. A simple rule for deciding when to buy long-duration funds is to look at the fact sheet of a long-duration fund and focus on yield. If yields are around 7.75 percent or above, it is generally a good entry point. If yields move closer to 6.75 percent, investors can start evaluating exits.

Private credit products promise higher returns, but Shah does not see them as direct competitors to debt funds. Every product serves a different purpose, and investors should choose based on macro conditions rather than chasing headline returns.