Mutual funds: Debt fund tweak you need after hawkish RBI policy

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Mutual funds: Maintaining its hawkish stance on interest rate hike, the Reserve Bank of India (RBI) today announced to raise the repo rate by 50 bps leaving CRR unchanged. After this RBI policy announcement, investment experts are well convinced that Indian central bank’s stance on inflation and interest rate is going to remain hawkish for short to medium term, which may require some tweak in one’s mutual funds portfolio, especially in debt funds. They said that debt funds with short term view (not more than two year), should be preferred ahead of equity funds as ultra short and short term debt funds are expected to outperform equity mutual funds in upcoming 6 months to two years.

Reacting upon the RBI policy, Manikaran Singhal, Founder at goodmoneying.com said, “After this RBI MPC meeting, it has become quite clear that RBI’s stance on interest rate and inflation is going to remain hawkish for short to medium term. It is also quite clear that Indian central bank is now on the same page with ECB, US Fed, and other central banks to contain inflation. So, mutual fund investors need to relook at the portfolio as short-term and ultra short term debt funds are expected to get benefit of this RBI’s stance in short term. Due to hawkish RBI stance on interest rate hike, equity mutual funds are expected to give tepid or negative return in short term. In such scenario, mutual fund investors are advised to rebalance their short-term and ultra short term debt mutual funds by shifting more money in such funds.” However, the SEBI registered expert said that equity mutual funds with medium to long term view need not any tweak as impact of hawkish RBI may get settled in next 6 to 12 months.

Advising fresh investors to prefer debt funds for short term, Pankaj Mathpal, MD & CEO at Optima Money Managers said, “If someone is planning to make fresh investment for short term, say 6 months to 2 years, debt funds for short term to ultra short term funds or liquid funds can be a better option as they may yield 0.5 per cent to 1 per cent higher from their current average yield. However, medium to long term funds won’t get much affected a the time of their maturity as markets would rebalance over the time.”

On how much return on can expect from short term debt funds, Sandeep Bagla, CEO, Trust Mutual Fund said, “Any funds with 2 year maturity will offer substantially higher interest than liquid or overnight funds. Liquid funds ae 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 7 per cent and balance roll down maturity of 2 years with top quality portfolio. Expect these funds to perform quite well in 3-6 months.”

Asked about the debt funds that an investor can look at for investing, portfolio management experts advised the following debt funds:

1] Kotak Savings Fund;

2] Aditya Birla Money Manager Fund; and

3] HDFC Short Term Fund.

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

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