Investment Managers Adjust Bond Duration in Fixed Income Funds Amid High Interest Rates

Bank Indonesia has raised its benchmark BI Rate by 100 basis points in the first half of the year. While there is still room for further increases, the yield on the benchmark 10-year government bond (SBN) briefly touched 7.5 percent, its highest level in four years. For some investors, the combination of high interest rates and spiking yields sounds like a reason to stay away from the bond market. In fact, the logic is the opposite. High yields mean bond prices are cheap, and historically, cheap prices rarely last long. The question is how investors can seize this momentum without ignoring the accompanying risks through fixed income mutual funds. Investment managers have a strategy to mitigate risk by adjusting the bond duration in their funds.

Bond duration is most easily understood as a measure of how sensitive a bond’s price is to changes in interest rates. The longer a portfolio’s duration, the greater the price swings when yields move, either up or down. Conversely, a shorter duration makes the price relatively more stable, although the potential for price increases when yields fall is also more limited. This relationship works both ways. When yields rise, the price of outstanding bonds tends to be depressed because investors demand a higher return for new bonds. Conversely, when yields start to fall, the price of outstanding bonds has the potential to rise, providing additional capital gains on top of the coupons investors regularly receive.

Although government bond yields are a benchmark for the bond market, fixed income mutual funds can also invest in corporate bonds. Their movement is also influenced by the issuer’s condition, tenor, and liquidity, and under certain conditions, they can offer additional return potential with risks that need to be considered. In practice, when the bond market fluctuates, investment managers do not passively wait for the direction of interest rates. When uncertainty is high and the signal for rates staying higher for longer remains strong, a common step is to shorten the portfolio duration and increase the allocation to money market instruments as a liquidity buffer. By shortening the duration of the fixed income mutual funds they manage, investment managers hope to dampen price volatility amid interest rate movements that are not yet fully certain. This move is not a signal of concern about the prospects for bonds, but rather a way for investment managers to balance maintaining portfolio stability while keeping room to capture opportunities when yields start to decline.

Investors considering adding exposure to fixed income mutual funds should note several points. First, entering gradually makes more sense than going all-in at once, given the future direction of the BI Rate could still shift. Second, adjust the investment horizon, as fixed income instruments are best enjoyed over the medium to long term, not for short-term funding needs. Third, understand that return expectations this year will naturally be more moderate, supported by a combination of coupons and more measured potential price increases compared to previous periods. Fourth, avoid the common mistake of withdrawing funds during short-term volatility, which is a normal part of the interest rate cycle. In other words, duration adjustment is not a sign of worry, but a disciplined strategy by investment managers to navigate interest rate uncertainty, and this is where choosing the right mutual fund becomes crucial.

Retail investors can enter the bond market through fixed income mutual funds, one of which is the Insight Renewable Energy Fund (I-Renewable) managed by PT Insight Investments Management (Insight IM). This product can be an alternative for investors with a moderate risk profile and a medium to long-term investment horizon. With assets under management reaching IDR 937.91 billion as of the end of June 2026, this product, which has been running since 2011, reflects investor confidence built across market cycles. Its portfolio focuses on corporate debt securities across various sectors, from energy and infrastructure to mining. With a minimum initial investment of IDR 100,000, this mutual fund is accessible to retail investors. In terms of performance, I-Renewable recorded a return of 6.35% over the past year, surpassing the industry average for similar mutual funds as reflected in the Bareksa Fixed Income Mutual Fund Index, which stood at 0.31%, as of 5 August 2026. Over a 3-year period, the difference is even wider, at 23.70% compared to 6.50%. One thing that sets I-Renewable apart from typical fixed income mutual funds is that a portion of the income received by the investment manager will be allocated to support the promotion and development of renewable energy programmes. This aligns with the commitment of Transforming Investment into Social Impact, the tagline of Insight IM as the fund manager.