Mutual fund investment strategy: How to take advantage of a rising interest rate regime

Mutual fund investment strategy: Amid the hawkish Reserve Bank of India (RBI) interest rate hike, mutual fund investors are busy guessing at its impact on their returns. According to tax and investment experts, such a rising rate regime can impact the performance of equity mutual funds in the short term, say 6 months to two years. However, for long-term mutual fund investors, this will not have much impact on their performance, as the markets would reduce their losses in the medium to long term. Experts have said that short-term investors, who have a time horizon of 6 months to two years, should invest in mutual funds, especially cash, money market and bond funds. They said these funds should generate 0.50 to 1% more than their current average annual return.

On how a mutual fund investor can benefit from this hawkish interest rate regime, Vinit Khandare, CEO and Founder of MyFundBazaar, said, “Every investor’s portfolio should be geared more towards funds whose maturity is less than two years in a rising interest rate scenario. For an investment of one month or less, choose a very short-term bond fund. For an investment of one month to one quarter, choose for a money market fund.The bond market is looking at a 200 basis point rise in the repo rate over the next two years, with terminal redemption rates at 6%.One-year bond yields are trading between 5. 10% and 5.20%.He said variable-rate funds can switch to new issues of securities at higher rates.Those with a long-term horizon can consider target-maturity funds.

On the adjustment to mutual fund investments following the hawkish RBI on rising interest rates, Palka Arora Chopra, senior vice president of mastertrust, said: “With interest rates which are expected to increase due to soaring inflation, investors must necessarily modify their existing debt fund portfolio and plan new investments based on an absolute time horizon. interest rates, a cautious investor should stick to short-term debt categories such as cash and money market funds.Investors may consider aggressive bond funds that retain a longer duration horizon and higher risk tolerance. high, while maintaining the flexibility to react to an ever-changing macro-environment.”

Regarding the expected return that can be expected from short-term debt funds, Sandeep Bagla, CEO of Trust Mutual Fund, said: “All debt mutual funds with a maturity of up to two years can offer significantly higher interest than liquid or overnight funds Liquid funds are likely to offer close to 4.75% to 5% interest income with low volatility A bank debt fund and PSU having a current portfolio yield of 6.80% to 7% and a two-year maturity balance with a high-quality portfolio. Expect these funds to perform quite well in 3-6 months.”

On the debt mutual funds one may think to invest in the wake of the rising interest rate regime, Pankaj Mathpal, MD and CEO of Optima Money Managers has listed the following funds:

1]Fund fund manager Aditya Birla Sun Life;

2]ICICI Short Term Prudential Fund;

3]Nippon India Short Term Fund; and

4]SBI Savings Fund.

Pankaj Mathpal of Optima Money Managers said debt mutual funds could earn 0.50% to 1.0% more than their average annual return over the next 6 months to two years.

Disclaimer: The opinions and recommendations made above are those of individual analysts or personal finance companies, and not of Mint.

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