Mutual Fund Investment Strategy: Mutual fund investors are busy gauging its impact on their returns amid the Reserve Bank of India’s (RBI) euphoria on the interest rate hike. According to tax and investment experts, the impact of such rate hikes could be on the returns of equity mutual funds in the short term i.e. 6 months to two years. However, for long term equity mutual fund investors, it will not have much impact on their returns as the market will reduce their losses in the medium to long term. Experts said short-term investors, who have a time horizon of 6 months to two years, should invest in debt mutual funds, especially liquid, money market and bond funds. Such funds are expected to generate 0.50 to 1 per cent higher than their current annual average returns, he added.
But how mutual funds “Investors can benefit from this faster interest rate regime,” said Vineet Khandare, CEO and Founder, MyFundBazaar, “Each investor portfolio should be more inclined towards funds that have maturity of less than two years in a rising interest rate scenario. are. Investing for a month or less, go for ultra-short term bond funds. For a quarter to a month investment, go for money market funds. The bond market is looking to hike the repo rate by 200 basis points over the next two years, with terminal repo rates at 6 per cent. The one-year bond yields are trading in the range of 5.10 per cent to 5.20 per cent. He added that floating rate funds can switch to new issuances of securities with higher rates. Those with a long-term horizon may consider Target Maturity Funds.
On changes in mutual fund investments in the wake of RBI’s buoyancy on interest rate hike, Palka Arora Chopra, Senior Vice President, MasterTrust, said, “With the rise in interest rates due to rising inflation, investors will have to replace their existing debt fund portfolios. and plan fresh investments on an absolute time frame basis. To benefit from rising interest rates, a conservative investor should stick to short-term debt categories such as – liquid and money market funds. Investor long term dynamic bond funds horizon and high risk tolerance, while having the flexibility to respond to the ever-changing macro-environment.”
On expected returns from debt funds in the short term, Sandeep Bagla, CEO, Trust Mutual Fund, said, “Any debt mutual fund with a maturity of up to two years can offer significantly higher interest rates than liquid or overnight funds. Liquid funds are less volatile. A banking and PSU debt fund with an ongoing portfolio yield of 6.80 per cent to 7 per cent and a balance roll down maturity of two years with a top quality portfolio. Expect these funds to perform very well in 3-6 months.”
On debt mutual funds that one can consider investing in in view of the rising interest rate regime, Pankaj Mathpal, MD & CEO, Optima Money Managers listed the following funds:
1]Aditya Birla Sun Life Money Manager Fund;
2]ICICI Prudential Short Term Fund;
3]Nippon India Short Term Fund; And
4]SBI Savings Fund.
Pankaj Mathpal of Optima Money Managers said that debt mutual funds can generate 0.50 per cent to 1.0 per cent more than their average annual returns over the next 6 months to two years.
Disclaimer: The views and recommendations above are those of individual analysts or personal finance companies, not Mint.