With the RBI keeping the repo rate unchanged at 5.25% and maintaining a neutral stance, investors may be wondering whether the best of the bond rally is already behind them.Devang Shah, Head of Fixed Income at Axis AMC, believes the fixed-income opportunity remains attractive, but the strategy now needs to shift from aggressive duration bets to quality and carry.He favours the 3-5 year segment, particularly high-quality corporate bonds and select state development loans (SDLs), while maintaining a neutral stance on long-duration government securities.Shah also believes investors should focus on current risk-reward rather than trying to time interest-rate moves, making fixed income more than just a defensive asset class in the current market environment. Edited Excerpts –Q) What is your take on the MPC policy meeting outcome? Do you see interest rates going higher or lower in the near term?A) The MPC's decision to keep the repo rate unchanged at 5.25% and maintain a neutral stance was broadly in line with expectations. The RBI appears comfortable with India's macroeconomic environment, supported by resilient growth, contained core inflation, healthy liquidity conditions and improved external sector stability.At the same time, the RBI remains watchful of risks from geopolitics, crude oil prices and global monetary policy developments.Our view is that while the rate hiking cycle may not be over, it is likely to be shallow. We do not expect more than 75 basis points of additional rate hikes over the rate hike cycle.Q) With the RBI repo rate at 5.25%, are we still in an environment where investors can lock in attractive yields, or has the best part of the rate cycle already passed?A) We believe the fixed-income opportunity remains attractive, although selectivity has become increasingly important.While the strong rally seen in bonds earlier has moderated, high-quality corporate bonds in the 3-5 year segment continue to offer a favourable risk-reward balance supported by attractive carry, ample liquidity and limited certificate of deposit issuance.The opportunity today is less about taking aggressive duration calls and more about earning attractive carry from carefully selected high-quality fixed-income assets.Q) Is it better to lock in a 7% yield on a high-quality bond today or wait for potentially higher yields if inflation or oil prices push rates up?A) Our research suggests that investors should focus on current risk-reward rather than trying to precisely time future rate movements.While crude oil remains the most important external risk for India and higher oil prices could create upward pressure on inflation and bond yields, our base case is that oil sustaining above US$100 per barrel is unlikely.We expect additional $70-80 billion in FCNR (B) which is expected to improve banking liquidity. Given the uncertainty around timing, high-quality corporate bonds in the 3-5-year segment currently offer attractive carry and a relatively balanced risk-reward profile.Therefore, remaining invested and focusing on quality carry opportunities appears more prudent than waiting entirely on the sidelines for potentially higher yields.Q) If you had ₹1 crore to deploy in fixed income today with a three-year horizon, how would you construct the portfolio?A) Based on the views Based on our current market view, we would favour the 3-5 year segment of the curve, particularly high-quality corporate bonds and select SDLs, where favourable carry, ample liquidity and limited CD issuance create an attractive risk-reward balance.We maintain a neutral stance on government securities, as potential support from foreign inflows could aid demand, but factors such as supply pressures, fiscal risks and the absence of meaningful OMO support may limit the scope for a sustained rally in long-duration government bonds.Overall, for a three-year investor, the focus should be on quality carry opportunities and selective positioning, rather than taking aggressive duration bets. As our research highlights, the appropriate strategy is to stay invested, stay selective and focus on quality opportunities in the intermediate part of the curve.Investors can broadly be segmented into three categories: those seeking a parking solution and who can consider Money Market Funds; those with an investment horizon of over one year can possibly look at Arbitrage Funds; and investors with a two-year-plus horizon can consider Income Plus Arbitrage Funds or Short-to-Medium Duration Funds.Q) How should investors divide their fixed-income allocation between government bonds, AAA corporate bonds, credit opportunities and money-market instruments?A) Our current preference remains for the 3-5 year segment of the curve, particularly high-quality corporate bonds, where the combination of attractive carry, ample liquidity and favourable demand-supply dynamics offers a compelling risk-reward balance. We maintain a neutral stance on government securities.While factors such as FCNR could provide support, the absence of significant OMO purchases, potential fiscal pressures and supply dynamics could limit the scope for a meaningful rally in long-duration government bonds.Money-market instruments continue to play an important role given the comfortable liquidity environment and can provide flexibility amid evolving market conditions.Overall, the emphasis should be on quality, selectivity and appropriate duration positioning, rather than stretching for yield. As highlighted in our outlook, the fixed-income opportunity remains attractive, but investors should focus on quality carry opportunities and stay selective in their portfolio construction.Q) Do you think that a bond fund makes more sense than buying individual bonds, and when does direct bond ownership have an advantage?A) For most investors, the mutual fund route to fixed income can make more sense as it offers liquidity, diversification, and access to well-researched investment opportunities that may be difficult to evaluate individually. It also reinforces a disciplined asset allocation approach, which is especially important in volatile fixed income markets.Q) What is the biggest misconception about bonds in India today—that they are boring, low-return investments?A) One misconception is that bonds are simply low-return investments that offer little opportunity beyond income generation. The current environment demonstrates that fixed income can offer attractive risk-adjusted opportunities when markets are stable.The focus today is not merely on earning income but on identifying quality carry opportunities and managing risks emanating from inflation, crude oil prices, global yields and monetary policy.In our view, the appropriate strategy is to stay invested, stay selective and focus on quality opportunities, particularly in the 3-5 year segment of the curve.Source: Bloomberg/ RBI/ Axis MF Internal Research as on 13th August, 2026Note: The sectors mentioned above are used to explain the concept and is for illustration purpose only and should not be used for development or implementation of any investment strategy. It should not be construed as investment advice to any party. Past performance may or may not be sustained in future.Disclaimer: This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable. The above should not be construed as an investment advise. Axis MF/AMC is not guaranteeing any returns on any investments.While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)