Mutual fund investment strategy: How to benefit from rising interest rate regime
Mutual fund investment strategy: Amid hawkish Reserve Bank of India (RBI) on interest rate hike, mutual fund investors are busy guessing about its impact on their return. According to tax and investment experts, such rate hike regime may impact equity mutual funds return in short term period, say 6 months to two years. However, for long term equity mutual fund investors, it won’t have much impact on their return as markets would pare its losses in medium to long term. Experts said that short term investors, who have time horizon for 6 months to two years, should invest in debt mutual funds, especially in liquid, money market and bond funds. They said that such funds are expected to generate 0.50 to 1 per cent more from their current annual average return.
On how a mutual funds investor can benefit from this hawkish interest rate regime, Vinit Khandare, CEO and Founder at MyFundBazaar said, “Every investor portfolio should be tilted more towards funds which are running a maturity of less than two years in a rising interest rate scenario. For a month’s investment or less, go for ultra-short term bond fund. For a month to a quarter’s investment, go for money market fund. The bond market is factoring a 200 basis points hike in repo rate in the next two years, with terminal repo rates at 6 per cent. One-year bond yields are trading in the 5.10 per cent to 5.20 per cent range. He said that floating rate funds can switch to newer issuance of securities with higher rates. Those with a long-term horizon may consider target maturity funds.
On mutual funds investment tweak in the wake of hawkish RBI on interest rate hike, Palka Arora Chopra, Senior Vice President at mastertrust said, “With interest rates set to rise due to the spiraling inflation, investors perforce have to tweak their existing debt funds portfolio and plan new investments based on an absolute time horizon. Tending to gain from the rising interest rates, a conservative investor should stick to short-term debt categories like – liquid and money market funds. Investors can look at dynamic bond funds keeping a longer time horizon and higher risk tolerance, keeping the flexibility to respond to an ever-changing macro-environment.”
On expected return that one can expect from debt funds in short term, Sandeep Bagla, CEO at Trust Mutual Fund said, “Any debt mutual funds with up to two year maturity may offer substantially higher interest than the liquid or overnight funds. Liquid funds are likely to offer close to 4.75 per cent to 5 per cent interest income with low volatility. A banking and PSU debt fund having a running portfolio yield of 6.80 per cent to 7 per cent and balance roll down maturity of two years with top quality portfolio. Expect these funds to perform quite well in 3-6 months.”
On debt mutual funds that one can think of investing in the wake of rising interest rate regime, Pankaj Mathpal, MD & CEO at Optima Money Managers listed out 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 may yield 0.50 per cent to 1.0 per cent higher from its average annual return in next 6 months to two years.
Disclaimer: The views and recommendations made above are those of individual analysts or personal finance companies, and not of Mint.
