In an unscheduled Monetary Policy Committee (MPC) meeting, the Reserve Bank of India Governor Shaktikanta Das announced a hike in repo rate by 40 bps to 4.40 per cent. The Indian Central bank increased repo rates after a 2-year hiatus, amid concerns of rising inflation.
While the move will increase Equated Monthly Installments (EMIs) on your borrowings and potentially unsettle your financial goals, experts recommend certain investment options that could give good returns and neutralize the impact.
Manish Kothari, Co-founder and CEO, Zfunds expects more hikes from current level. His advice to investors is to opt for debt funds. “It would be best to look for Debt MF categories and funds having short durations,” the CEO said.
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“While selecting debt funds, the most important factors to be considered are Modified Duration, Yield to Maturity and Credit Quality of the fund which still remains the same amid the current scenario,” Kothari said.
In the debt fund category, investors could look at liquid funds, ultra short funds, low duration funds and few other funds in categories like corporate funds, which have short duration. The Zfunds Co-founder takes his pick in debt mutual funds, recommending categories like corporate bond funds, medium duration for 1-3 year investment horizon.
In the large cap space, we are currently recommending categories like largecap, Flexicap and Balanced Advantage funds.
As for equity Mutual Funds, important factors to be considered are concentration, portfolio valuations like P/B and P/E, diversification, past performance, etc, he further said.
On the debt side, Kothari suggests Aditya Birla Sun Life Corporate Bond Fund with 5.78 Net YTM (Yield to Maturity).
He also recommended his top picks in the equity Mutual Fund segment. “Our top recommendations in the large cap space would be the Index Fund – HDFC Index Sensex Fund, in Flexicap – Parag Parikh Flexi Cap Fund & in Balanced Advantage space, ICICI’s Balanced Advantage,” the Zfunds Co-founder said.
Reacting on the announcement, Sandeep Yadav, Head- Fixed Income at DSP Investment Managers said that markets were expecting rate hikes, albeit in June policy. He said that the central bank exhibited alacrity in raising repo rates in the mid policy announcement.
“We expect debt yields to rise up further. Investors should follow a three pronged approach – (i) invest in low duration funds, (ii) invest in smaller tranches in longer duration products like rolldown (iii) invest in actively managed funds to weather the rate cycles,” he added.
(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)