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RATES AND THE RIGHT DEBT FUND
Southern Mail Newspaper
|June 24, 2025
Debt mutual funds generate higher returns during falling interest rate regime and vice versa
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Fixed deposit (FC) rates registered a steady dip ever since the MPC started rate-easing cycle at its February meet. The latest 50 bps cut in repo rate and easing liquidity conditions should lead banks to cut FD rates more. This may push fixed income investors towards debt mutual funds to benefit from easing rate cycles. However, with over 300 debt funds and 16 categories, wrong fund choice may lead to sub-optimal returns/ capital loss. Here are some key factors to help make informed decisions on debt funds.
Current cycle
Interest rate cycles play a major role in the price movement of bonds and other fixed income securities. Prices of securities such as bonds have an inverse relationship with direction and quantum of interest rate changes.
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