Rising rates tip the balance in favour of FDs, debt funds

Investors' strategies need a rethink in 2023 as long-term fixed-income instruments are offering higher yields compared to other asset classes.

- SACHIN KUMAR

RISING interest rates have tipped the scales in favour of bank Fixed Deposits (FDs) and debt funds. Recent increases in rates on FDs by the banks, higher returns by debt funds and disappointing performance by the equity market have prompted investors to rethink their investment strategy.

With interest rates expected to peak during the second half of this year, the time is ripe for risk-averse investors to increase their allocation in FDs and debt funds, believe experts.

"We are somewhere close to the peak of the interest rate cycle and rates should touch their peak in 2023. So, it is a good idea for an investor to start locking in a longer-term fixed interest rate. In the first half of the year, they should try to increase the allocation to the longer-term fixed income instruments," Vishal Dhawan, Founder of Plan Ahead Wealth Advisor told TNIE.

FD rates over 7%

Interest rates on bank FDs have shot up recently following the multiple repo rate hikes by the Reserve Bank of India last year. In a bid to reign-in high inflation, the central bank has raised the repo rate by 225 basis points (bps) since April 2022. The RBI is widely expected to raise the repo rate by 25 bps in its next meeting in February.