Authored By By Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram AMC

Given the heightened market volatility and ongoing geopolitical tensions between the US and Iran, investors are encouraged to prioritize capital protection over a period by shifting surplus liquidity toward the short end of the yield curve.

In an environment where the India VIX has surged and oil prices remain elevated above $100, long-duration products face significant "-to-market" risks and price instability. Consequently, overnight and liquid money market funds currently offer a more compelling risk-adjusted proposition, as their minimal sensitivity to interest rate swings provide a safe harbor from the fluctuations affecting longer-term bonds.

By focusing on these short-term instruments, investors can maintain high liquidity and stable risk adjusted returns while waiting for the "fog of war" to clear.

This defensive stance allows for a tactical transition; once the geopolitical landscape stabilises, investors can gradually redeploy capital into duration schemes or equities to capture long-term growth.

For now, the strategy centers on avoiding duration risk in favor of the stability provided by instruments maturing in the very near term.

Looking ahead, the strategy will be shaped by how the situation develops.

While short-term volatility may create tactical trading opportunities, a prolonged disruption to the Strait of Hormuz would act as a structural external shock to India’s growth trajectory.

In such a scenario, the risk-reward equation clearly shifts away from aggressive duration positioning toward high-quality accrual strategies that prioritise stability amid elevated uncertainty.

A meaningful easing in oil prices and Rupee volatility would be key signals for reassessing duration exposure.