Go for low-duration funds now

Holding these for up to a year may yield returns of 7.75-8%

- SAIKAT NEOGI

INVESTING IN LOW-DURATION mutual funds has emerged as a timely opportunity as interest rates fall. These funds balance stability and returns, making them an ideal choice for those looking to park surplus funds while aiming for better yields than traditional savings instruments.

When interest rates fall, bond prices rise which benefits low-duration funds as they hold short-term bonds with lower sensitivity to rate changes. These funds also offer better returns than liquid or ultra short-term funds while maintaining relatively low risk. Low-duration funds suit conservative to moderately risk-tolerant investors looking for better returns than fixed deposits but without locking in capital for long periods.

Attractive returns Holding low-duration funds for up to a year could generate returns of 7.75-8%, making them a better alternative to liquid funds or fixed deposits. These funds, which invest in short-term debt instruments, are well-positioned to gain from both falling rates and the current steep spreads between overnight rates and short-term bond yields.