Mutual Fund Investment: How to benefit from a mutual fund in times of rising interest rates?

The increase in interest rates by the Reserve Bank of India (RBI) will have far-reaching implications. Mutual funds will not be left untouched by this. In such a scenario, mutual fund investors are busy estimating its impact on their returns. Investment experts believe that an increase in interest rates could affect the return of equity mutual funds in a short period of 6 months to 2 years.

However, experts also point out that for long-term investors in equity mutual funds, interest rates will not have much effect on their returns. This is because the market will reduce losses in the medium to long term. Experts said that such short-term investors, who want to invest for 6 months to 2 years, should invest in debt mutual funds. It is better to invest in short term, especially liquid, money market and bond funds.

May choose ultra-short term bonds

According to market experts, investing in liquid, money market and bond funds is expected to give investors a return of 0.5 to 1 per cent higher than the current average annual return. He believes that amid rising interest rates, mutual fund investors should include in their portfolio those funds that mature in 2 years. The CEO of MyFundBazaar said that investors should invest in ultra-short term bond funds for a period of 1 month or less. At the same time, for 1 month to 3 months, they should choose a money market fund.

A change in portfolio is required

Experts believe that investors will have to adjust their current debt fund portfolio amid rising interest rates in the face of rising inflation. Conservatives should look at short-term fungi such as liquid and money market funds to take advantage of rising interest rates.

Dynamic Bond Fund

On the other hand, if we talk about bond yields, 1-year bond yields are trading in the range of 5.1% to 5.20%. The next 2 years will also see strong growth in the bond market due to the increase in repo rate. The 10-year India bond yield rose to 7.36 per cent from 7.11 per cent in the previous day. Long-term investors may see dynamic bond funds with a high risk appetite.

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Updated: June 16, 2022 — 12:28 pm

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