Switch from FDs to Debt Funds

Kiran Dhawale

The normalisation of monetary policy in the global economy that started in the year 2015 has gained strength. The US Federal Reserve has raised rates twice this year and is widely expected to do so again next month and in December. The Indian central bank is also not behind and has raised rates couple of times in the last few months. Despite an independent monetary policy committee and adequate forex reserves, India might follow the US Fed in order to restrict any sudden and huge outflow of foreign portfolio investments (FPI) and to maintain a decent external value of rupee. Besides, there are other compelling reasons such as higher crude oil prices and rising inflation that may entail higher interest rates going ahead.

These rate hikes will have varying impacts on different sectors and funds. Nevertheless, the hikes will also lead to an increase in the overall interest rates in the country. Therefore, investors who opt for fixed deposits to channelise their savings might see good times going ahead. A careful analysis, however, shows that even if interest rates on fixed deposits go up, the debt funds will still have an upper hand as compared to the FDs and give better returns. Hence, the debt mutual fund should be a preferred route of investment if you are risk-averse and do not want to go for equity investment. One of our special reports elaborates how debt funds score over fixed deposits on different parameters. The report also enlightens on which type of debt funds are suitable in the current scenario when interest rates are going up.

The rising interest rates may also impact various equity funds and create temporary volatility. In these cases, it is argued that multi-cap funds will perform better. Another special report in this issue talks about how multi-cap funds have performed historically, both during the volatile market and in a rising market.

Finally, in our cover story, you will find how to analyse and select a mutual fund scheme. We have tried to bust many myths relating to selection of good equity mutual fund.

Hope this issue will help you take better financial decisions.

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