Debt mutual fund: call rate, rising benchmark yield; What should your mutual fund strategy be?
Interbank call rates are the rates that banks pay to meet their short-term funding mismatches. The 10-year benchmark rate tells you the movement of rates or yields in the money market. Simply put, the market is pricing in a rate hike and the mood is already reflected in yield moves. It’s only a matter of time before RBI joins the party. The central bank should soon raise its key rates.
Of course, you already know that’s the impact on the stock market. The market has been worried for some time about a likely rate hike. Coupled with the omicron threat, the market has taken cautious paths for some time.
As for the debt market, the prognosis remains the same. Interest rates are expected to rise soon. The RBI is closely monitoring the virus threat. It also keeps an eye on the twin threats of growth and inflation. Money market players are unanimous on the fact that it could soon start tightening rates.
So what should you do? Stick to your asset allocation plans, say financial advisors. Don’t be adventurous and make drastic changes to your initial plans based on the situation in emerging markets. Remember that this is going to be a phase and adjusting your investments to these trends could be counterproductive.
Mutual fund investors should stick to short-term funds, as these plans would fare slightly better in a rising interest rate scenario. If you are investing for a very short period, stick to cash. If you’re investing for three years or more, you can choose short duration funds, corporate bond funds, bank funds, and PSU funds. You can also bet on variable rate funds. Note that the lack of investment options is a cause for concern for these schemes.
If you want to learn more about debt investing, read this in-depth interview. Lower your debt fund return expectations, says Quantum MF’s Pankaj Pathak