The rise in interest rates by the RBI last year to tame inflation made medium to long-duration funds less attractive. The apex bank raised rates by a cumulative 250 bps since April 2022 to curb inflation. This hike had an adverse impact on medium to long-duration debt funds as an increase in interest rates resulted in the depreciation of bond prices.
However, with times changing, the question is whether one should invest in medium to long duration funds. Let’s find out.
End of Aggressive Tightening Cycle
If experts are to be believed, the RBI will start slowing the pace of interest rate increase. It means it’s near the end of its aggressive tightening cycle. So, in the coming months, there are chances that rates may witness a little or no increase.
If this happens, the same will make bonds from medium to long-duration funds attractive again, thereby enhancing returns. So, if you have an investment horizon of more than 4 years, you can invest in these funds.
Moderating of Inflation Likely to Aid
After a continuous uptick for several months, inflation has shown signs of moderation. The consumer price index-based retail inflation stood at 5.88% and 5.72% in November and December 2022, respectively. With inflation likely to come down, medium to long-duration funds can be prudent mutual fund investment options.
Advantages of Investing Business Money in Medium to Long Duration Fund
- Higher Returns Compared to Bank FDs
Medium to long-duration funds can offer higher returns than bank FDs. That’s not all. If held for 3 years or more, they offer an indexation benefit that lowers tax outgo.
- Prudent Investment Options for Medium Term Goals
Medium to long-duration funds can be a prudent investment option for corporates looking to build a corpus for medium-term goals such as business expansion, developing a new product or service, or enhancing business share. As these funds are less volatile than equities, they are less susceptible to market movements.
Summing Up
Medium to long-duration funds are finally returning after feeling the pinch of high-interest rates. It is a good time to make these funds a part of your portfolio for decent returns and diversification. With Shootih, you can invest in various mutual funds to bolster business profits by utilizing your idle cash. Schedule a demo with our expert today.
Disclaimer: Mutual fund investments are subject to market risks, please read all scheme-related documents carefully
The content of this blog is not intended to serve any professional advice or guidance and Shootih takes no responsibility or liability in whatsoever manner for any investment decisions made by the readers of this blog or other blogs. Readers should seek independent professional advice before making any investment decision based on the information provided on this website.
