Time period is 3-5 yrs. I am trying to ascertain which fund categories would be best.
I want to move some money from my FD to Debt. As per me, interest rate will rise somewhere in between these 3-5 Years. Which funds will make most returns in that scenario. ?
So, bond prices fall when interest rates rise, which means that your existing bonds will be marked down. In this scenario, it is better to look into short duration bonds or floater funds.
Comparing the 10 years’ returns is not the right measure to evaluate debt funds. Instead, you should look into the average maturity of the bond holdings and the credit quality.
RBI has been dovish for far too long but I do think they’re behind the curve.
I don’t want to hazard a guess on interest rate movement, but instead try to provide simple analogy to chart you have shown.
This is the 10 years RBI repo rate chart
As you can se over last 10 years, interest rates have dropped, hence long term funds have provided superior returns on 10 year avg compared to short term funds.
If you think this trend in interest rate will reverse in next 3-5 years, 10 year average return shown in you table will also reverse. So long term funds which are making high returns (like gilt, Banking and PSU, long duration, medium to long) will start making low returns. And short term funds (like ultra short, low duration, money market, short duration) will provide relatively higher return
On the contrary if you think last 10 year trend in RBI repo rate will persist and rates continue to fall in next 3-5 years, trend shown in your chart will also continue, with long term funds providing higher return than short term funds.
I personally believe that rates are slated to rise so better to invest in short or medium term funds, but again I may be wrong,
Hope this helps in your decision making.
Can diversify in highest AUM AMC with equal weight-age among each.
Ps: This is my personal research , you should consult registered Advisor before investing.
Corporate bond funds with maturity below 5 years or even ultra short funds can be your bet. Avoid very long term funds as they can be very volatile.
