Kotak AMC’s Abhishek Bisen explains why investing in debt now can turn into a goldmine for retirement savings

Highlighting India’s strong macroeconomic fundamentals, low inflation, and attractive bond yields, Bisen explained how locking in debt investments today could potentially translate into a substantial retirement corpus over the next decade.

He also addressed common concerns around debt mutual fund volatility, explained the difference between FDs and debt funds, and offered a realistic perspective on long-term returns, emphasizing that strategic investments now could pay off significantly in the future. Edited Excerpts –

Kshitij Anand: Let us start with the tariff war as well. In fact, US Treasury yields fell to multi-week lows on Friday following President Donald Trump‘s threat to impose a massive increase in tariffs on Chinese imports. Will it have any bearing on India as well?
Abhishek Bisen: So, whenever some uncertainty erupts in the global markets, it definitely has some impact. But this kind of uncertainty, related to geopolitical events and tariffs, primarily affects the currency.

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Through the currency markets, it can also impact equities and debt. However, given our fundamentals—for example, fairly benign inflation, reasonable GDP growth, a manageable current account deficit, and FX reserves of around $700 billion—we are fairly comfortable with our macroeconomic fundamentals.
Therefore, while the currency has depreciated relatively, it has not impacted fixed income. Given the sectoral impact of tariffs, equity markets have been affected, which is fair, but that is a limited impact.
In general, if the macroeconomic fundamentals were weak, it could have adversely impacted the markets. This time, however, given the strong fundamentals, our fixed income markets have not reacted negatively.
Kshitij Anand: And the mutual fund data also came out recently. I am sure you are tracking it. Can you help us identify the key drivers behind more than one lakh crore of outflows from debt mutual funds in September 2025?
Abhishek Bisen: Mutual funds are often used by corporates and large HNIs for cash management, as well as by both retail and corporate investors for investment purposes. If you look at the product array—from liquid to ultra-short or short-term funds—they are largely used as cash management tools.

These outflows typically relate to that strategy, where corporates plan their strategic or traditional outflows, largely attributable to taxes, which occur on a quarterly basis. So this activity is normal and not unusual.

Had the outflows been exceptionally large, then a deeper investigation would have been needed. But this is routine, recurring every quarter. Our ALMs are planned accordingly in short-term schemes, and the liquidity profile reflects this typical behavior from corporates.

Kshitij Anand: And my next question is also related to the quarterly redemptions. Probably next quarter, in December, we could see some large outflows from debt mutual funds. The data would likely come out in January.
Abhishek Bisen: Yes, absolutely. If you observe previous data, largely 75–80% of outflows can be attributed to advance taxes, and the balance relates to cash management for other investment or expenditure purposes by corporates.

Kshitij Anand: Let me also get your perspective on the big debate—can debt mutual funds beat FDs, and what are your views on how one should approach this?
Abhishek Bisen: This has been a fairly long-debated subject, and we have been trying to address it. Both are not exactly apples-to-apples comparisons because of the difference in mark-to-market treatment.

An FD is a straight-line product where you get accruals over the term you invest. For example, if you invest in a five-year FD, you receive a straight-line accrual.

In a mutual fund, however, if you invest in a fund with a similar duration, there is market-related volatility. If you invest when yields are slightly higher or rising, near-term returns may be impacted, which creates uncertainty.

However, I want to share with viewers that any fixed-income product with a reasonable credit profile is likely to achieve its yield-to-maturity (YTM) toward maturity, similar to an FD.

If the YTM of the fund is higher than that of an FD, the likelihood of the mutual fund matching or beating FD returns is higher.

From this perspective, if you hold your investments in a debt mutual fund in line with its maturity profile, the chances of matching or even exceeding FD returns are fairly decent.

The key is to adjust your objective and understand the volatility that comes with duration. People often focus on past returns. If past returns are good, the future is already partly priced in, so the scope for higher returns may be limited.

Conversely, if past returns are low, the future returns are more likely to be delivered, making it an attractive entry point into fixed-income funds. Unfortunately, investor interest tends to be low when past returns are poor.

To illustrate, consider a five-year FD yielding 7% per annum. The cash flows are 7, 7, 7, 7, 7 for five years. If rates go up, the return for the current year may drop—for example, to zero—but the “missed” interest will be adjusted over the remaining four years.

Some people incorrectly assume the money is lost, but it is not—it is simply spread across future accruals. In a mutual fund, because the maturity profile is not fixed, returns are volatile. That is why, if your objective allows, you might consider increasing your allocation during such periods.

Kshitij Anand: And for someone planning to invest in debt funds, what is a realistic long-term expectation?
Abhishek Bisen: Since markets are volatile, yields keep changing based on macroeconomic fundamentals. Currently and in the near future, long-term bond yields are in the range of 7–7.5% for risk-free sovereign bonds. Corporate bonds are slightly higher, by about 50 basis points.

However, one trend to observe is that long-term yields in India have been gradually declining, reflecting underlying fundamentals. Long-term inflationary pressures are benign.

Inflation has moved from 7–8% to 5–6%, and now to 4–5%. As India grows into the third-largest economy, technological advancements and other factors will likely keep inflation around 4%. Therefore, long-term bond yields may settle around 5–6% over the next three to five years.

The implication is that money invested today may earn slightly higher returns than future investments made after three to four years, as forward yields are likely to be lower. Over time, this will allow you to build a larger corpus even as future investment rates decline.

Kshitij Anand: In fact, if we dig deeper into the data, it suggests that over the long term—say, a 10 to 15-year period—debt has actually provided returns above inflation. Given that inflation is currently at multi-decade lows, do you think this is the right time to invest and lock in yields?
Abhishek Bisen: Absolutely, that is exactly what I was trying to highlight. If you believe in fundamentals and the long-term story that is unfolding, every economy passes through similar phases.

We are currently in the growth phase, which is likely to peak in the next five to six years. The demographic dividend we are enjoying over the next four to ten years will be gradually discounted by the market.

Once growth starts plateauing after five to ten years, challenges will emerge due to demographic fundamentals, which will be reflected in long-term bond yields—similar to what has happened in other major economies.

As India becomes one of the top two or three economies, a similar trend is likely to occur.

Therefore, it is important to lock in your retirement corpus at a healthy rate of around 7% or slightly higher now, so that when these slower growth periods arrive, your investment essentially becomes a goldmine.

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