It is estimated that from February or March 2022, the repo rate will become the operational rate and it may increase from April 2022. In such a situation, investors of debt funds should consider their policy.
Debt Mutual Fund Investments in 2022: People have slowly learned to live with the virus and now governments around the world may consider withdrawing the extraordinary stimulus packages that have been given for the past two years. However, the process of withdrawing them has already started and many central banks are increasing the rates. This process may continue this year as well.
However, the challenge before the central banks is to manage the huge surplus liquidity in the markets rather than normalizing policy rates. RBI has also started its process regarding this. According to estimates, from February or March 2022, the repo rate will become the operational rate and it may increase from April 2022. In such a situation, debt mutual fund investors should consider their policy regarding increase in rates and tightening of financial position.
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Investors can adopt this strategy
Investors can adopt specific strategies for investing in debt mutual funds this year – Roll Down Strategy and Ladder Portfolio Strategy. Under this, if you want to invest for five years, instead of investing the entire capital for five years, it can be invested for a period of 1 year, 2 years, 3 years, 4 years and 5 years. By doing this, it will be beneficial that when the rates rise, a part of the capital will mature every year and by reinvesting that money, higher returns can be obtained.
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RBI can adopt this policy
This year, the Reserve Bank may stop infusing liquidity into the markets with the increase in interest rates and due to reduction in excess liquidity along with higher increase in debt, corporate spreads may start rising, which are currently at all-time low. It is important for RBI to manage the extra cash as the durable liquidity has crossed Rs 11 lakh crore. Moreover, this year the short term rates may remain higher than the longer term rates.
(Article: Puneet Pal, Head, Fixed Income, PGIM India Mutual Fund)
(Disclaimer: These are the author’s own views and Financial Express Online does not take any responsibility. Please consult your advisor before taking any investment decision.)
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