Shift to short-term debt funds

With the huge volatility in the equity markets, many people are looking at debt funds as an investment option. But even the debt market seems to be volatile, currently. Also, RBI hiked its repo rate by 25 bps twice in the last two policy meets.

This increase has eroded the returns of the long-term bond holders. The interest rate and bond prices have a inverse relationship. So when rates rise bond prices fall. Moreover, experts believe that the rising interest rate environment will continue in the upcoming period, so long duration bond funds would not be beneficial for investors.

With the rising crude oil prices, the upward inflation risk is also an aspect to keep in mind. So investors should shift to the short-term debt funds to avoid mark to market losses. Short-term debt funds are low risk instruments which aim to provide stable returns over a period of time.

Off late, it is observed that investors are turning their back on Gilt funds and income funds. As per the AMFI data, since the beginning of the calendar year 2018, investors have sold income and gilt funds worth Rs. 39,600 crore. Even returns from these long-term funds have been poor. In the last one year, these funds have offered returns of 0.57 per cent. So exiting these long duration funds and switching towards the short duration funds would be an advantageous step for investors aiming to protect their returns.