HDFC AMC's Anupam Joshi on the Enduring Role of Debt Investments

Debt Investments Remain Relevant for Investors, Says HDFC AMC's Anupam Joshi

At the recent Moneycontrol Dezerv Wealth Summit in Bangalore, HDFC AMC's Anupam Joshi outlined four key reasons why fixed income should continue to play an important role in investor portfolios. According to Joshi, fixed income remains valuable not only for portfolio stability but also for liquidity, tax efficiency, and long-term wealth creation opportunities.

Fixed income investments offer investors a steady pool of capital during emergencies and can generally be liquidated without significant impact costs. This stability helps reduce overall portfolio volatility during periods of uncertainty. Moreover, fixed income investments provide tax flexibility, allowing investors to defer taxation until redemption.

Debt mutual funds, in particular, offer favorable tax treatment, with investments held for more than two years attracting taxation of nearly 12.5%. This gives investors flexibility to redeem investments later in life, potentially when they fall into a lower income-tax bracket after retirement.

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India's long-term economic growth story also strengthens the case for debt investments. As the economy transitions from developing to developed markets, trend growth, inflation, and interest rates typically moderate over time. In such an environment, current long-term yields present an opportunity for investors to lock in attractive returns for extended periods.

According to Joshi, if India sustains long-term growth of around 6% to 6.5% alongside inflation of 4% to 5%, current long-duration bond yields offer attractive positive real returns. In fact, India's 30- and 40-year bond yields are now nearing levels around 7.8%, which Joshi described as attractive for long-term investors.

Outlook for Interest Rates

On his outlook for interest rates, Joshi expects the Reserve Bank of India to raise interest rates over the coming quarters amid rising inflationary pressures and geopolitical uncertainty. He expects the RBI to raise rates by 75 to 100 basis points over the next four to six quarters, though the pace of tightening will depend on how inflation and growth evolve.

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Given the uncertain environment and the likelihood of tighter global monetary policy across major economies, Joshi recommends that investors currently prefer shorter-duration debt products, particularly one-year and one-to-three-year duration strategies. However, he also emphasized that bond markets are forward-looking and may have already priced in much of the expected tightening cycle.

Note: The above table represents the recommended allocation to different duration debt products based on Joshi's outlook.