Are accrual strategies emerging as the winning formula in fixed income investing?

Surbhi Khanna, ET Online

Aug 9, 2025

Change in focus

After the RBI paused rate changes following a 100-basis-point cut, fixed income investors may need to recalibrate their portfolios. Experts suggest moving away from duration-heavy bets such as gilt and long-term funds, and focusing instead on accrual strategies—debt schemes that deliver through consistent interest earnings, as reported by ETBureau.

Impact on returns

Investors holding long-term and gilt funds could book profits after earning high single-digit returns over the last year.

To focus now

The fund categories that follow accrual strategies include corporate bond, short duration, medium duration and credit risk funds.

Expert opinion

"Investors have benefited from capital appreciation as yields have fallen and spreads on 10-year and 30-year bonds compressed sharply while interest rates are likely to remain lower for an extended period, the structural rally in long bonds appears to have played out," says Devang Shah, head, fixed income at Axis Mutual Fund.

Way ahead

The probability of further rate cuts looks low. Investors could move to accrual strategies and deploy money in short to medium tenure funds," says Nirav Karkera, head of research, Fisdom

Where to invest?

Wealth managers believe investors with a timeframe of three to six months can consider ultra short-term funds that can return 6-6.5%, while those with a time frame of up to two years can consider corporate bond funds that can return around 6.5-7%.

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