India's top-rated low-duration corporate debt investments are likely to offer better returns than longer-duration bonds, which must be avoided for the time being, a fixed income official at Invesco Mutual Fund said on Friday. "The spread of corporate bonds over government bonds of up to two-year maturity are attractive and close to the historical average," said Vikas Garg, head of fixed income at Invesco Mutual Fund. The fund house roughly manages around 170 billion rupees ($2. 05 billion) of debt. TRENDING STORIES See All Premium Mountain Dew launches campaign with Hrithik Roshan and . . . Premium PM Modi to inaugurate Shivamogga airport on Feb 27, say . . . Premium Sun, Sand and no inheritance tax fuel property boom in . . . Premium Harvey Weinstein, once Hollywood legend, gets another 1 . . . "But the moment we go longer, the spread comes down to as low as 20 basis points (bps). " The AAA-rated two-year corporate bonds were yielding 7. 80%, while the entire yield curve up to the 15-year part remained around the same levels, Refinitiv data showed. One-year commercial papers of top-rated companies are now yielding around 8%. "Investors should look at actively managed funds and could invest around 70%-80% in up to two-year bonds, and the remaining portion could be invested in money market instruments," Garg said. India's shorter-duration bond yields have risen over the last few sessions, as the Reserve Bank of India ( RBI ) may raise the repo rate further. Tight liquidity conditions are also hurting. The RBI raised the repo rate for a sixth consecutive time to 6. 50% earlier this month, and kept the door open for more tightening, spooking markets. MINT PREMIUM See All Premium 10 fundamentally strong smallcap stocks to watch out fo . . . Premium Big tech pushes further into finance Premium Data recap: Bids for lithium, house prices Premium Can a centralized regulation help drug quality? "Large part of returns would be coming from accrual strategy and not from capital gains," Garg said. "India may not see a rate cut in 2023, and we may not see a major benefit from capital gains, so investors should look at the space that gives the best risk-reward while keeping the duration risk under control," he further added. Garg recommends that investors lock in funds in short-term bonds currently and then increase the duration profile once rate cut comes into the picture, around 12 months to 18 months later. "2024 may be a better entry point for longer-duration bonds, with better clarity on rate cut scenario. " He rules out any major spike in the shorter-duration yields in near term, as markets have already factored in another rate hike, to which Garg has only assigned a 50% probability. "Market may get relief after the rate hike, with the terminal repo rate at 6. 75%. There could be a relief rally, especially in the up to five-year space. " This story has been published from a wire agency feed without modifications to the text. Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach. Take the test Catch all the Commodity News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News . More Less Topics corporate bond OPEN IN APP.