The interest rate cut and declining inflation by the RBI have promoted the return of debt mutual funds. Find out in which category of loan fund you should buy now
Date funds have been on a roll to cut RBI rate and decline in inflation in the last few months. Interest rate cuts are beneficial for date funds holding bonds of high coupon rates.Funds that line up their portfolio with very long -term bonds are the biggest beneficial when the yield of the bond starts south. Average long -term funds have increased by 2.65% in the last one month. The best performance plan, Aditya Birla Sun Life Long period fund has increased by 3.11%. The average maturation profile of the bond in its portfolio is more than 26 years.
Experts feel that good time will continue. Bond yields declined in February, the RBI had cut the repo rate by 25 basis points. Last week, it cut the rate from another 25 base points and moved its stance from “neutral” to “adjustment”, which leaves the door open to the front rate if necessary.
Changes in stance also reflect the assessment of the central bank of economic development and inflation in the coming months. However, experts are divided on whether it will translate into higher rate cuts. Some people hope that RBI will reduce the repo rate to 25–50 basis points during this financial year, while others believe that there will be an extended stagnation.
Given this situation, short -term funds still look like a good bet. These schemes invest in bonds with residual maturity of 18-24 months. The short maturity profile makes the interest rate negligible. If you want a stable return then go for short -term funds.
Investors who believe that RBI will actually cut rates, can go for a moderate period or long -term bonds. As mentioned earlier, these funds will be the biggest beneficiaries when the rates decline. Long -term bond funds gave double digits returns in the last one year. However, if the rates do not fall as expected, these funds can give muted returns.
It cannot decide whether to go for short -term money or long -term plans or not? Why not the option of Dynamic Bond Fund? It is necessary to invest the date fund in a bond of some tenure according to its mandate. But according to the reading of the fund manager in the dynamic bond fund, the average maturity of your portfolio is the flexibility to change the profile. Dynamic bond funds have improved short and medium -term date funds in the last one year.
