Invest in longer-duration to gain from anticipated rate cuts

Avoid going overboard with exposure to these funds as unforeseen events could prevent inflation from softening

- SANJAY KUMAR SINGH

Debt funds underperformed both equity funds and gold in 2023. In 2024, however, many longer-duration categories of debt funds could yield low double-digit returns if the anticipated rate cuts materialise.

Positive drivers

Possible rate cuts: Experts foresee the strong possibility of a rate cut this year.

"Core inflation has already moved close to 4 per cent. If we get a decent monsoon, consumer price index (CPI)-based inflation could also move towards that mark. That could lead to at least two rate cuts from the Reserve Bank of India (RBI)," says Murthy Nagarajan, head of fixed income, Tata Mutual Fund.

The RBI's actions will partially be influenced by the actions of global central banks. Globally, the rate hike cycle is coming to an end, with a strong possibility of rate cuts, especially in the US, Europe and other parts of the Western world where rates have been hiked much above neutral levels.

The US Federal Reserve has indicated 75 basis points of rate cut.

In India, a few Monetary Policy Committee (MPC) members are already talking of rate cuts.