India’s largest mutual fund, based on assets under management, is steering clear of ultra-long duration debt, even as the Indian government reduces its supply. Instead, the fund is focusing on 5-to-10 year government bonds and shorter-term corporate notes, according to Rajeev Radhakrishnan, chief investment officer of fixed income at SBI Mutual Fund.
The government has cut the proportion of ultra-long 30-50 year bonds for the second half of the fiscal year while increasing allocations for 5-year and 10-year bonds in response to feedback from various investor groups.
Radhakrishnan described this adjustment in supply as a “temporary fix.” He pointed out that the rise in long-term bond yields represents a structural issue within the market. This imbalance in supply and demand for long-term bonds has arisen from several factors, including pension and insurance funds shifting towards equity investments and changes in tax regulations that have impacted debt flows into mutual funds and insurance products.
Expressing caution, Radhakrishnan stated, “Given the overall weak demand and the fact that we are possibly at the late stage of the rate cycle, we would not want to be structurally overweight on long-end duration and prefer being invested in the most liquid segment of the curve.”
As for interest rates, Radhakrishnan anticipates that the central bank will maintain rates at their current level this Wednesday; however, he does not rule out a potential 25-basis-point rate cut in December. He also noted that 1-3 year corporate bonds present an attractive opportunity due to favorable spreads with government bond yields, sufficient liquidity, and a suitable level of supply.
Published on September 30, 2025.
