Time to shuffle your investments

Time to shuffle your investments

Recently, lot of people asked me one question: should we go back to the fixed deposits even at the cost of tax. The equity market is not performing and interest rates are quite high. Yes, we all waited for the D day. Today RBI has cut down the rates by 50 bps. Inflation has come down but still it is quite high. But RBI looked at growth rather than inflation. A brave step by RBi should give investors a smile.

Now the question is how you will manage your investments. My first suggestion will be choose long term bonds
over short term bonds. Bonds which have higher duration will do better than the short one. Implication of short
term bonds will not be as good as long term bonds. this year and the next, the country’s fiscal deficit is likely to worsen.

This may result in higher government borrowing. Taking these factors into account, we expect the 10- year yield to trade between 7.75 per cent and 8.25 per cent in the first half and 8.25-8.75 per cent in the second half of the year. The expectation of rate reversal has already begun to be priced into the performance of various debt funds. Short-term debt funds have delivered a return of 9.3 per cent over the last one year, followed by funds in the long-term category, where income funds have returned 9.1 per cent.

Dynamic bond funds have delivered 11-12 per cent. These funds actively manage interest rate risk by changing the duration of bonds that they hold in line with the interest rate cycle. They mimic a cash fund (with 100 per cent into cash) when interest rates are rising, thereby preserving capital, and can generate the attractive returns of an income fund (being fully invested in 10-year bonds) when interest rates are declining.

Hence, we advise investors who want to park their money in the funds to:
First check the pedigree of the fund house.
In addition, monitor the track record of the fund manager in terms of the interest rate calls that he has
given during different rate regimes; if the judgment has turned out to be positive for the fund.
Review the performance of the other debt schemes that he has been managing.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 85350

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