Most investors fear that they might lose out on their investments due to the fluctuations in the equities market. Contrary to popular belief, volatile behavior is not restricted to the performance of stock markets. Similar attributes can also be observed in the debt market, and the current scenario is witness to the fact that any improvement in output is unlikely in the near future. If you have made investments in the debt market, it is high time that you take charge of the situation, as we stand at a crucial point that differentiates between profitability and a huge margin of losses. The Reserve Bank of India (RBI) had hiked interest rates last year, indicating that no such rise will take place sooner, at least for now. With inflation expected to rise for some more time, coupled with a rise in the price of oil globally, and a fall in the price of the Rupee, an aggressive monetary stance may continue for a little more time.
While many analysts believe that this rise in the rate of inflation and its subsequent pause is a step to contribute towards a decline in inflation. If this does not work out, then another round of hike in interest rates could be expected. However, since we have reached the peak of the interest rate cycle, this rate hike cycle will come to an end soon, and the RBI may not lead to a peak in interest rates anytime soon. It may choose for a bigger break in the interest rate cycle and inflation would be weaker by the next fiscal year. Besides inflation, the market will have to be wary of the fiscal deficit situation in the country. The Government may be forced to issue more securities if it does not handle the gap between its income and spending prudently. No matter how you perceive it, the interest cycle will definitely have an impact on your investments, particularly in the fixed income sector.
In order to safeguard yourself from these highly-volatile tendencies, opt for short-term debt funds. These open-ended schemes generate good returns by making investments in a portfolio, which is diversified. Investments are usually made in short-term instruments of debt and the money market. Since interest rates are constantly rising in an unprecedented fashion, it is best to place your investments in debt funds with short maturity profiles as they are less sensitive to the fluctuations in interest rates, as compared to long-term instruments.
It is your hard earned income that you seek to grow, hence, it is important to take prudent financial decisions. Evaluate the performance of the fund on various criteria like their past performance, the fund’s fundamentals, the stocks into which your savings will be invested in etc. Most times certain funds may perform well at the time you decide to include them in your portfolio. However due to aggressive market cycles, they may stoop down way below their benchmarks. In such situations your immediate attention is required. If the fund has been underperforming continuously for more than 2 quarters, understand the reasons behind the underperformance and after deliberating the causes and reasons with your financial advisor and opt out of the fund.
In these trying financial times it is not advisable to opt for loans due to the high interest rate scenario. Borrowing debt like a loan may prove to be fatal for your financial health, slashing your returns to a very low level. Make sure that you have linked your goals to your investments giving ample time for them to grow to the levels as you desire. Till then stay calm and make sure you do not take any hasty decisions.