By Dharamraj Dhutia

MUMBAI, Jan 20 (Reuters) - Franklin Templeton Asset Management is invested in lower-duration Indian government debt and is waiting for an upward move in yields to increase its duration, a fund manager said on Monday.

"We are underweight duration in the respective categories, and we think there will be opportunities to add duration at more attractive levels, overall improving the risk-adjusted return profile," said Rahul Goswami, chief investment officer and managing director for India fixed income at the fund house.

"The mutual fund industry has witnessed better flows from investors in shorter duration funds than the long duration funds," he said.

The fund house manages assets worth around 1.13 trillion rupees ($13.16 billion) at the end of December.

India's two-year to five-year government bond yields were hovering in the 6.68%-6.71% range, compared to the benchmark 10-year yield IN10YT=RR, which was at 6.76%.

The current yield curve is not appropriately pricing in the risks from external factors and there is a high probability that this will remain a challenge for an extended period, Goswami said.

"We are a current account deficit economy with large energy imports, any spike in energy and commodity prices can pose a challenging situation on CAD and BOP (balance of payments)," he said.

The Indian rupee INR=IN has declined around 3% since Donald Trump won the U.S. presidential election in November. Trump is set to assume charge later in the day.

Although Indian bond yields are closer to levels seen before Trump's victory, there is a risk that any further spike in U.S. Treasury yields could be reflected locally.

Goswami said he expects the central bank to ease monetary policy conditions only after achieving greater macro stability, even as many market participants are anticipating the Reserve Bank of India to start easing rates from as early as February.

"Purely looking from growth-inflation dynamics, the MPC (monetary policy committee) may find merit in cutting interest rates by around 50 bps in CY2025 but rate cuts may not materialise in the immediate future, given that near-term headwinds warrant a more careful approach."

($1 = 86.5240 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Varun H K)

((Dharamraj.Dhutia@thomsonreuters.com;))