The Reserve Bank of India’s (RBI) announcement of keeping key policy rates unchanged after the latest meeting caught everyone by surprise, albeit pleasantly. While there were anticipations of a 25 bps hike in interest rates, the apex bank pressed the pause button and kept rates unchanged.
Though the RBI governor said that the war against inflation is yet to be won until figures appear close to the comfort zone, the announcement from India’s central bank has further made debt funds lucrative for businesses. Read on to learn why?
Debt Mutual Funds Tend to Do Well In These Times
It is the ideal time to invest business money in debt mutual funds now as they tend to do well now. Because of the inverse relationship between bond prices and interest rates, net asset value of debt funds will rise now, which will help bolster returns. So, if you invest business money in debt mutual funds now, they can provide decent returns on your investment.
Debt Funds Staging a Comeback
While the pause in interest rates augurs well for debt funds, what’s also encouraging is the rise of yields. Yields across the curve and credit spectrum have increased significantly in the last couple of years. While yields on 3-year AAA-rated corporate bond funds went up to 7.9% in March 2023 from 4.7% in October 2020, yield from 5-year AAA-rated corporate bonds has gone to 7.8% from 5.6% during the same period.
At the same time, we are at the fag end of the interest rate cycle, and though further hikes can happen, the message is loud and clear – the worse is behind us for debt funds which are negatively impacted by a hike in rates as the same pull-down bond yields.
Invest Business Money in Short-term Debt Mutual Funds
While the time is conducive to invest business money in debt mutual funds, it’s wise to park money in short-term debt funds compared to medium to long duration funds. This is because though the worst of the interest rate hike is behind us, the stance of the apex bank is a pause and not a pivot. If inflation refuses to come down to levels as envisaged by the apex bank, it will not shy away from hiking rates again.
If it happens, medium to long-duration funds will bear its brunt as yields will come down. On the other hand, short-term debt funds are less susceptible to interest rate risks as the maturity period of their underlying securities is of low duration. Hence, even if interest rates peak, short-term debt funds are better structured to weather the storm.
Cushion In Times of Volatility
With global financial markets on tenterhooks due to the failure of banks in the US and Europe amplifying volatility, the case is even stronger for business owners to contemplate investing in debt funds. Debt mutual funds not only provide the required cushion in these trying times but also ensure you can make meaningful gains to shape your business goals.
To invest idle business cash in a range of mutual funds, you can bank on Shootih – India’s First Business Wealth Management Platform. Shootih offers you a range of debt funds to invest depending on your goal and investment horizon. To see how it can be a game changer for your business, schedule a demo call 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.
