2022 WAS A SLOW YEAR for fixed income funds, which were hit by rising interest rates. With category average return of 4.09%, ultra-short duration funds, and short duration funds (with average return of 4.03% as of December 18, 2022) were the only ones that performed comparatively well during the year, says Dinesh Rohira, founder and CEO, 5nance.com, the online portal of financial tech firm Innovage Fintech.

The best fund managers in the debt funds category in the Fortune India study this year, however, believe the appeal of fixed income as an asset class has increased, as interest rates returned to their neutral level and portfolio yields rose. In fact, they expect 2023 to be better despite fears of a global slowdown. "India seems to be in a pretty stable scenario in terms of macroeconomic data," says Dinesh Ahuja, fund manager, fixed income, SBI Mutual Fund, the winner in the category.

"The U.S. economy is experiencing significant rate increases (as they are in a late cycle), it could slow down and possibly go into recession. But in India, things are different since our economy is in a different cycle and is seeing strong growth. Rates have not been raised by the RBI far enough for us to be concerned about any domestic slowdown," adds Manish Banthia, deputy CIO, fixed income, ICICI Prudential AMC, who holds the second spot.

In 2022, fund managers had to adjust their strategies to reflect the normalisation of rates by the RBI. ICICI's Banthia believes risk management became especially significant at the beginning of the year.

According to Rahul Goswami, CIO, fixed income, ICICI Prudential AMC, strategies that worked in 2022 include active duration management, increased exposure to floating rate bonds and capitalising on accrual space when credit spreads were high. Goswami is third on the list.

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