Mutual fund tweaks that your portfolio needs amid rising interest rate regime

Mutual funds: Amid uber-hawkish global central banks on interest rate hike, equity mutual funds are expected to deliver tepid return in short term. So, there is need for rebalancing one’s mutual fund portfolio as moving towards ultra short term and debt mutual funds from short term equity funds may generate 0.50 per cent to 1 per cent more.

According to tax and investment experts, due to hawkish RBI on interest rate hike, equity mutual funds‘ return for 6 months to two years time horizon, may deliver tepid return. so, those who have investments in equity mutual funds for such time horizon are advised to move their fund from such mutual funds to liquid and bond funds. They said that money markets can also be a good choice while rebalancing one’s mutual fund portfolio amid rising bank interest rates.

Speaking on mutual funds portfolio management in such rising interest rate regime, Vinit Khandare, CEO and Founder at MyFundBazaar said, “Due to the hawkish RBI stance on interest rate hike, equity mutual funds are expected to give tepid or negative returns in the short term. In such a 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.”

On fresh mutual fund investors, MyFundBazaar expert said that if an investor is planning to make fresh investment for a shorter time period, 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 at the time of their maturity as markets would rebalance over the time.

Echoing with Vinit Khandare of MyFundBazaar, SEBI registered tax and investment expert Jitendra Solanki said, “Investing in equities for short term is not advisable. Equity mutual fund is for medium to long term time horizon and hence, fresh investors are advised to look at liquid and bond funds or at debt mutual funds as they are expected to give better returns than equity funds.”

The Reserve Bank of India (RBI) on Friday announced repo rate hike by 50 bps to 5.90 per cent.  The central bank of India has taken this step to keep the national economy in good shape, especially after the sharp fall in Indian National Rupee (INR) on sudden spike in dollar index to its record high of 114.77 levels.

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