Opt for a laddering strategy now

This will minimise the risk associated with interest rate changes

- SAIKAT NEOGI

AS THE RESERVE Bank of India has increased the repo rate by 225 basis points since May this year and the yield to maturity across various debt fund categories is offering attractive opportunities, individual investors should look at bond laddering, consisting of paper of different maturity dates at regular intervals. Such a strategy will not only create a regular flow of money for investors but will also minimise the risk associated with future movements in interest rates.

Bond laddering will help smooth out the effect of interest rate fluctuations and spreading out maturity dates every month, quarter or year will prevent retail investors from timing the market.

It will also help to mitigate the reinvestment risks in case the interest rates fall. In such a case, while some bonds maturing will have to reinvested at lower rates, those which are at the end of the ladder will not be affected as they would be already locked in at higher yields.