Mr. Rahul Pal

Chief Investment Officer at Mahindra Manulife – Fixed Income

Mr. Rahul Pal is a Chartered Accountant. Prior to joining Mahindra Manulife Investment Management Private Limited, he was associated with Taurus Asset Management Company Limited as ‘CIO – Fixed Income’. He has also worked with Sundaram Asset Management Company Limited as ‘Fund Manager – Fixed Income’. In these roles, he was responsible for managing and overseeing the FixedzIncome Portfolios.

Q1. What are your views on the US Fed rate and how will it impact the debt markets?

Ans: Globally interest rates have looked at askance at the US interest rates. The narrative continues to be in a flux with uncertainty surrounding the inflation trajectory. However despite the low unemployment numbers and a stronger GDP, data on credit card and auto loan delinquencies present an interesting dichotomy .We also believe, with China and European economy may possibly show a sluggish growth, thereby creating a lower inflation trajectory globally.

Q2. What trends will drive the debt mutual fund industry in FY25?

Ans: The major trends for the debt mutual fund industry would be the movements of the interest rates in India and Globally. If inflation cools down and interest begin to come off peak levels, we may see growing interest in the debt mutual fund space as corporates look to raise capital to build capacity for growth. The loosening of relatively tight liquidity policies may also be a key factor.

Q3. While the interim budget was announced on 1st Feb 2024, the final budget is yet to be released. Do you think there are any concerns in the debt market that require government intervention?

Ans: No specific concerns to be addressed. A review of recent changes to tax policy in relation to indexation benefit could be helpful.

Q4. Debt mutual funds have been witnessing MoM outflows and in December it reached over 75,000 crore. On the other hand, equity mutual funds have been gaining popularity among investors. Do you believe that in the war between equity and debt, the latter will prevail?

Ans: The main reason for major outflows have been a combination of strong equity performance and change in tax laws that have resulted in the stronger attractiveness of certain hybrid funds. However, the utility of safety, compounded growth and liquidity remain advantages of investing in debt mutual funds, which will not be eroded by these trends.

Q5. Why should an investor consider investing in a debt mutual fund and not in fixed deposits where there is a momentum going on of higher interest rates?

Ans: The key advantage of Debt mutual funds is the compounding effect of capital appreciation. In FD, the interest payments are taxed (including TDS) immediately. With fixed income the investor pay taxes on capital gains only at the time of redemption, allowing a greater chance to grow their investments, while getting the similar advantages of FDs such as liquidity and investment in relatively safer instruments.

Q6. Which category of debt mutual funds would you recommend an investor to consider in the short term and medium term?

Ans: For the short term, depending on the investor’s investment horizon, we would recommend a fund from the range of Overnight Funds to Short Duration Funds (investment horizon of 1 day to ~2.5 years according to need.). For longer investment horizons, we would recommend Dynamic Bond Funds, as they are able to actively manage duration and change their positioning in accordance with market movements.