LONG DURATION

AT A TIME WHEN debt investors are wrestling with shifting interest rate expectations, one fund that has managed to hold its own is ICICI Prudential All Seasons Bond Gr. Behind that consistency is Manish Banthia, chief investment officer, fixed income at ICICI Prudential AMC.

A long-duration fund invests in bonds with long maturities, often seven years or more. These schemes tend to react sharply to interest rate moves. When rates fall, their net asset value usually jumps, rewarding patience. But here’s the flip side: the longer the maturity, the greater the volatility.

Returns for such funds vary with economic cycles. The ICICI Prudential All Seasons Bond Gr fund, however, has given around 8.1% over the past year — a solid outcome in an uncertain bond-market environment. This stability is largely attributed to Banthia, who has led the fund since its early years. In the decade since, he has transformed it into a sizeable debt scheme, earning strong confidence from investors and advisers alike.

Banthia’s investment style is grounded in active duration management. Rather than chasing market trends, he moves the portfolio based on how economic signals are shifting. The result is a balance between optimising yield and controlling volatility.

“The All Seasons Bond fund’s strategy does not carry a high duration,” says Banthia. “The portfolio is constructed around high-carry assets and long bonds that are hedged against OIS. We believe both segments offer reasonable carry trades, and in the next one year, securing carry is more critical than relying on mark-to-market gains. Our endeavour is to maintain a reasonable level of carry without taking excessive duration risk.” The OIS (open-ended investment schemes) allow investment/withdrawal anytime.

A carry trade is any strategy where an investor borrows capital at a lower interest rate to invest in assets with potentially higher returns.

This preference for carry over aggressive duration calls has shaped the fund’s measured path, feels Banthia. “We follow a framework-based approach, wherein duration is adjusted in line with how the economy is evolving, and markets are positioned.” Earlier in 2025, when bond markets ran ahead of fundamentals, the fund cut duration sharply, avoiding unnecessary risk. That decision helped insulate investors from the sudden swings that followed.

Industry watchers see this as the kind of discipline that separates prudent fixed-income strategies from bolder bets. “Investors can distinguish prudent funds from aggressive ones by evaluating portfolio construction — including effective duration, weighted-average credit quality, sector diversification — and how well the strategy adheres to its stated investment philosophy,” says Aditya Agrawal, founder and chief investment officer, Avisa Wealth Creators.

Agrawal advises investors to “prioritise funds that focus on disciplined credit quality and strong liquidity buffers.”

CORPORATE BOND

FOR MOST PEOPLE, the world of bonds feels distant — a quiet corner of finance where numbers move slowly and risks seem tame. But for ICICI Prudential AMC’s Manish Banthia, this quiet corner is where some of the most decisive calls of 2026 will be made. As India moves through the final stretch of the current rate cycle, Banthia finds himself steering one of the country’s largest fixed-income franchises through shifting yields, changing liquidity conditions and renewed investor appetite for high-quality debt.

Corporate bonds sit at the heart of this story. They are essentially loans that companies take from investors, offering interest payments in return. Yields are usually higher than government securities, but so are the risks — the primary reason why fund managers tend to build portfolios with a fine balance of return, safety and liquidity. The ICICI Prudential Corporate Bond Gr fund, which largely invests in AA+ and above-rated instruments, has delivered between 8% and 8.2% over the last year, reflecting this philosophy.

Banthia believes the next phase will reward prudence. “We believe we are at the end of the rate cut cycle. Investors should lower their duration risk at this stage.” The fund has been deliberately positioned to become gradually safer, says Banthia. “For us, the focus is on making the fund safer for investors in terms of overall duration risk… our portfolio positioning is aligned with that thought process.”

He points to the shorter end of the yield curve — up to 1.5 years — as the most comfortable zone for the time being. In his view, this segment offers stability without compromising too much on returns. Beyond this, selective exposure to state development loans (SDLs) and longer-tenure government securities makes sense, but only when paired with a hedged position. This allows the fund to participate in favourable rate movements without taking on outsized interest rate risk, says Banthia.

His advice — exercise caution in the three-five year segment because “as growth normalises, the curve flattening could impact investor returns.”

On the credit side, Banthia keeps the bar intentionally high. “The Corporate Bond Fund Gr invests largely in AAA assets, wherein our selection criterion has always been guided by a focus on investor safety,” he notes. Even within AAA-rated non-bank lenders, the team stays “selective and careful”.

Market observers say the macro backdrop is turning supportive. Puneet Singhania, director, Master Trust Group, a financial services firm points to fiscal consolidation, lower government borrowing and rising foreign interest in Indian debt. “Improved fiscal discipline reduces government borrowing, easing supply pressure and pulling G-Sec yields lower.”

For Banthia, the message to investors is simple: stay high-quality, measured, and aligned with the realities of a maturing cycle. In a year where every basis point will matter, his approach underscores one thing — caution, when paired with clarity, can be a strategy in itself.

SHORT DURATION

AT A TIME WHEN investors are trying to make sense of shifting interest rate signals and growing uncertainty in the debt market, short-duration funds have emerged as a steady corner of fixed income. Behind one of the category’s most consistent performers — HDFC Short Term Debt Gr fund — is Anil Bamboli, a senior fund manager known for his measured approach, sharp credit instincts and focus on risk control. With more than 29 years of experience in fund management and research, Bamboli oversees 12 schemes with a combined AUM of ₹1.90 lakh crore. HDFC Short Term Debt Gr fund has delivered around 8% annualised returns over the past year, roughly 7.8% over three years and about 6.1–6.6% over five years. Since inception, the fund has maintained an 8% CAGR, signalling long-term consistency in a category that can otherwise show wide variation.

A short-duration fund invests in bonds and money market instruments with a Macaulay duration (the time taken to reach profitability) of one to three years. This structure helps the fund offer steady returns without taking on excessive interest rate risks. “These funds carry lower volatility compared to long-duration funds, making them a stable choice within the debt category,” says Swapnil Aggarwal, director at VSRK Capital, a financial advisory firm.

Bamboli notes the short-duration category itself is diverse. “Short-duration debt funds have regulatory limits in terms of duration, but not in terms of credit profile. There is bound to be divergence between credit profiles of different funds in this category.”

He emphasises investors should look beyond returns and assess the sponsor’s strength, the rigour of credit processes and the historical track record — factors that often determine how a fund behaves during market stress. The approach ensures the fund does not chase yield at the cost of long-term resilience.

For Bamboli, the mix of safety and steady returns is the core promise — and responsibility — of managing short-duration debt. And it is this disciplined mindset that continues to shape the fund’s performance in an evolving fixed-income environment.

ULTRA-SHORT

FOR MOST INVESTORS, debt funds sit quietly in the background of a portfolio, delivering stability. But inside fund houses, navigating short-term debt markets is nothing smooth. It demands constant judgement, macro awareness and the discipline to preserve capital even when global jitters threaten to unsettle the calm. At Bandhan AMC, a bulk of this responsibility rests with Harshal Joshi, senior vice president, fixed income, Bandhan AMC, whose approach to short-duration investing blends pragmatism and economic insight.

Ultra-short duration funds operate in a tight corner of the debt universe. With maturities of just three to six months, they aim to deliver slightly higher returns than liquid funds, while keeping risk and volatility in check. The Bandhan Ultra Short Duration Fund Regular Gr, launched in 2018, is built around this idea. It invests in high-quality debt and money-market securities. Over the past year, the scheme has delivered around 7.3%, while its annualised return since inception is around 6.5%.

Joshi’s investment philosophy is based on a simple principle: align the fund’s maturity profile with the investor’s horizon. “Short-term debt allocations should ideally be mapped with the horizon of investment to the maturity of the scheme… the closer the horizon and the maturity of the fund, the smoother the investor experience,” says Joshi. In practice, this means ensuring that the strategy never takes on more duration risk than necessary, especially in an environment where RBI’s policy actions still depend on the delicate mix of inflation and growth.

Investors often misunderstand how to judge active management in different debt categories, says Joshi. “A low-duration fund should be evaluated with a 12-month horizon, while dynamic bond or gilt funds should be viewed over three-five years.”

Industry watchers point out today’s environment is far from straightforward. Global events — from U.S. elections to liquidity shocks — can quickly influence risk sentiment in funds with very short maturities, says Singhania of Master Trust Group. A combination of diversification, strong liquidity buffers and tight duration control helps protect investor capital in risk-off phases, he adds.