India’s biggest asset managers have pared hedges and shortened duration across debt portfolios, favouring cash and high-grade short-term paper as higher yields and softer demand make directional rate bets riskier.

Managers shift to cash and short paper India’s leading debt fund houses have moved away from the long-duration, carry-heavy trades that dominated 2024 and much of 2025. Key tactical moves include: - Axis Asset Management: added cash cushions to pick opportunities rather than chase duration gains. - Bandhan AMC: raised liquid buffers to preserve optionality. - Aditya Birla Sun Life AMC: tilted portfolios into shorter-dated corporate debt, prioritising security selection and counterparty quality. - SBI Funds Management: favoured state development loans where spreads are attractive, while treating duration as a tactical call. SBI Funds Management has described duration as a tactical decision, with managers prioritising stability and accrual over a directional duration strategy in the current phase of the rate cycle. Where fund flows are headed Managers say they are building cash reserves to deploy selectively and buying high-grade short-term corporate bonds to lock in accrual with lower interest-rate sensitivity. Basant Bafna, head of fixed income at Mirae Asset Investment Managers (India), said portfolios are being rebalanced toward accrual-focused securities, with high-grade short-term paper the main staging ground for fresh allocations. State development loans remain of interest to some managers because of liquidity and potential index-driven demand, but elevated issuance could limit sharp price gains. Practical portfolio moves The prevailing posture is a moderate duration stance: maintain a core of accrual in high-grade instruments, keep liquidity buffers, favour shorter maturities and focus on credit quality rather than stretching for yield. Managers who increased duration last year are trimming it or holding shorter positions to protect portfolios from rate surprises.

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"Given the overall macro and demand dynamics in the current phase of the rate cycle, it’s time to prioritise stability and accrual over a directional duration strategy," said Rajeev Radhakrishnan, chief investment officer for fixed income at SBI Funds Management.

This article was created with AI assistance.